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Okay, I promise this will be the last post on the matter. But some of the tropes that come up time and time again in coverage of Chavez’s legacy, from neocons and faux-leftists alike, just have to be addressed for me to rest easy. Note that this is NOT meant to be comprehensive; just some things that continuously get slipped in on the side and tend to get taken for granted.

Chavez rigged elections. Look, I like to think I’m objective here. Some politicians I like rule countries where electoral fraud is widespread. But Venezuela isn’t Russia in this respect. Not only are election results consistent with pre-elections, unbiased polls, but Venezuela’s voting technology makes fraud extremely difficult. See Mark Weisbrot:

In Venezuela, voters touch a computer screen to cast their vote and then receive a paper receipt, which they verify and deposit in a ballot box. Most of the paper ballots are compared with the electronic tally. This system makes vote-rigging nearly impossible: to steal the vote would require hacking the computers and then stuffing the ballot boxes to match the rigged vote.

Unlike in the US, where in a close vote we really have no idea who won (see Bush v Gore), Venezuelans can be sure that their vote counts. And also unlike the US, where as many as 90 million eligible voters will not vote in November, the government in Venezuela has done everything to increase voter registration (now at a record of about 97%) and participation.

Chavez closed down critical TV stations. And yet the old case of the failure to prolong RCTV’s broadcasting license continues to be cited as the main evidence of this media “suppression.” E.g. from the faux-liberal Daily Beast:

And yet Latin America’s new democratic leaders rarely spoke against the excesses of Chávismo, turning a blind eye when he canceled the operating license of independent broadcaster RCTV in 2007…

What typically goes studiously unmentioned is that RCTV gleefully and one-sidedly supported the foreign-backed coup attempt against the legitimately elected Chavez administration in 2002. In many other countries, this would have been considered treason, with the attendant penalties of long-term imprisonment or even execution. In humane Venezuela, however, you just lose your broadcasting license.

Electricity blackouts. Guardianista presstite Rory Carroll, who clearly has an agenda:

He leaves Venezuela a ruin, and his death plunges its roughly 30 million citizens into profound uncertainty.

Because that exactly describes an increase in GDP per capita from $4,105 in 1999 to $10,810 in 2011 (according to his own newspaper). As Craig Willy says:

But particularly hilarious is this statement:

Underinvestment and ineptitude hit hydropower stations and the electricity grid, causing weekly blackouts that continue to darken cities, fry electrical equipment, silence machinery and require de facto rationing.

Because of course they never happen in pro-Western, investor-friendly countries.

Chavez stole $2 billion. These are rumors that keep slithering about in the comments from various neocons, although they rarely pop up into mainstream media texts outright. Apparently this claim comes from some right-wing law firm in Miami that claims the Castro brothers of Cuba are billionaires too. I find it about as credible as claims about Putin’s $40 billion fortune (or is it $70 billion now?), initially made by some non-entity Russian political scientist, and Gaddafi’s $200 billion fortune, probably spread by the CIA or somesuch in the course of NATO’s assault on the Libyan Arab Jamahiriya (very ironic, coming from thieves who had seized Libya’s foreign-based assets). Funny how it’s always those who dare stand up to Western imperialism who get accused by their flunkies of massive corruption, no? I wonder if one causes the other?

Oil dependence. A lot of the presstitutes have accused Chavez of increasing Venezuela’s oil dependence, e.g.:

Former minister Gerver Torres points out that in 1998 oil represented 77 percent of Venezuela’s exports but by 2011 oil represented 96 percent of exports. That means today only around 4 percent of the goods that Venezuela exports are non-oil products! The Venezuelan economy relies almost exclusively on the price of oil and the ability of the government to spend oil revenues.

That’s kind of what happens when the oil price goes from being $11.91 per barrel (in 1998) to $87.04 (in 2011)! Funny how they harp on about how rising oil prices “unfairly” helped Chavez but then instantly shut up about it when making THIS particular point.

Higher violent crime. Not a myth. In fact, as I made clear, it’s one of the Chavez administration’s very biggest failings. Then ago, we also have many of the presstitutes claiming he was a dictator – even though the precise opposite happens with real dictators (they don’t tolerate alternate sources of violence, and they don’t bother with legal niceties; they just put all the suspected mafiosi up against a wall – put the two together, and violent crime almost always plummets under the rule of real dictators. The Sicilian Mafia actually provided help to Allied troops against the Mussolini regime).

He was friends with Ahmadinejad. Plenty of Western politicians are friends with Saudi prices. Drop the double standards.

He was anti-American. Well, what can you expect if you plot a coup against someone and then incessantly demonize him for not respecting democracy? Like Castro, incidentally, he actually started out fairly pro-American. It didn’t have to be this way.

He didn’t build skyscrapers. This has to be read to be believed. From AP’s Pamela Sampson:

Chavez invested Venezuela’s oil wealth into social programs including state-run food markets, cash benefits for poor families, free health clinics and education programs. But those gains were meager compared with the spectacular construction projects that oil riches spurred in glittering Middle Eastern cities, including the world’s tallest building in Dubai and plans for branches of the Louvre and Guggenheim museums in Abu Dhabi.

The author’s agenda speaks for itself. (Not to mention her ignorance – while Venezuela remains fiscally sound, Dubai’s big tower remains 80% unoccupied and needed a $10 billion bailout. Had Chavez listened to people like these then Venezuela would have gone bankrupt for real, not just in their sordid, bitter like imaginations).

(Republished from AKarlin.com by permission of author or representative)
 
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Not sure you can say that of many national ambassadors! This is what I wrote to this email for expressing condolences on Chavez’s passing:

After a heroic battle with cancer, Hugo Rafael Chávez Frías has shuffled off this mortal coil, but his dream will endure forever and continue giving hope unto the hearts of men and women all over the world. In his dream, nations can triumph over comprador elites, even when the latter are backed by international plutocrats and the world’s greatest superpower. It is the dream of 21 century socialism, which has resoundingly proven that social justice, better living standards, and democracy are not trade-offs, but complementary to each other. It is the dream of a Venezuela and a Latin America that is democratic, socially cohesive, independent, and sovereign. Salutations to the late Comandante, in the firm conviction that Venezuela will find worthy successors to continue pursuing the Bolivarian dream.

Here is his response:

Dear Anatoly,

Thank you very much for your kind message.

During this difficult time for us as Venezuelans, your words were greatly appreciated.

In spite of Chavez’s absence, we will always carry with us his example, perhaps the most important of which was his true dedication and constant perseverance to realise his dreams of independence, sovereignty, justice and solidarity.

Thanks again for your support.

Samuel Moncada, Ambassador.

Incidentally, Mr. Moncada has an impressive academic pedigree, with a PhD in history from Oxford University. Just goes to show that the claims that Venezuela has no meritocracy and all the prestigious political/diplomatic jobs go to chavista cronies are probably false or at least very exaggerated.

Another thing to note is that Samuel Moncada also writes for The Guardian. This article is particularly interesting – apparently he was almost arrested by the CIA-backed coup plotters in 2002. (Many in his apartment block were not so lucky). I try to keep from empty moralizing, but sometimes it’s really sickening how the same people who crow the loudest about Chavez’s “rollback” of democracy studiously ignore – and perhaps privately lament the failure of – the comprador elites’ attempt to unseat a democratically and legitimately elected President.

(Republished from AKarlin.com by permission of author or representative)
 
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http://www.youtube.com/watch?v=08cD7-MYaJo

We all suspected this would come sooner or later. As it happens, Chavez struggled heroically against his cancer, confounding the intensive Schadenfreude and concerted death wishes of his loathsome detractors month after arduous month.

But this is what you can expect to get when you look out for your own countrymen and stand up to imperialism. Probably no other modern national leader apart from Putin has been quite as consistently and caustically vilified by the Western media.

They say that he managed to squander Venezuela’s oil wealth. I suppose he is guilty as charged, if by “squander” you mean spending it on ordinary Venezuelans as opposed to funneling it away to foreign bankster rats. During his rule, real GDP increased by 50%, poverty has halved, inequality was reduced to a very low level at least by Latin American oligarchic standards, infant mortality was greatly reduced, and virtually the whole array of other socio-economic indicators that states care to track, from access to clean drinking water to enrollment in higher education (which increased by a stunning 138%), saw great improvements. At the same time, contrary to the claims of the neoliberal propagandists, debt hasn’t increased; it was a modest 45% of GDP as of 2011 (IMF), which reduces to 25% if only central government debt is accounted for. The national accounts have on average been balanced.

venezuela-gdp

This was all achieved despite the real negative impacts of the 2002-2003 oil industry strikes, which occurred in tandem with an abortive CIA-backed coup, and the global Great Recession; not to mention Venezuela’s own legacy of corruption and backwardness inherited from previous regimes.

The traitorous cockroaches, including on my very blog, claimed Chavez “oppressed” them and stole the elections. They said he was a dictator for refusing to extend the license of their opposition RCTV channel. The irony is that in any actually democratic country it would have been instantly shut down and they’d have been locked away for decades for treason, if not lined up against the wall like the rabid scum they are. They materially supported a foreign backed coup against a legitimately elected national leader and then had the gall, the temerity, the sheer chutzpah to complain that one of their talking shops was taken away from them! Even though much of the media in Venezuela remains in oligarch pockets and continues to tell lies about pro-Chavez electoral fraud, when all the polls indicate that that is indeed the will of the people. Of course there’s nothing contradictory about that. The seditious vermin despise the Venezuelan people and would much rather dissolve them and elect another (as opposed to emigrating and parasiting off some other country).

The incorrigibly thievish liberals, no doubt full of projection, claim that Venezuela under Chavez has become one of the most corrupt countries in the world. They cite the loathsome Corruption Perceptions Index in support of this view – i.e. the perceptions of the same internationalist banksters and “experts” who have such a withering hatred for those countries that dare to stand up against Western imperialism. Asking ordinary people reveals quite a different picture: Fewer ordinary Venezuelans (some 20% of them) said that had to pay a bribe in the past year than in Colombia (24%), the Western puppet state next door.

latin-america-homicide-rates

Perhaps the only real failing of the Chavez administration is its inability to control violent crime. Venezuela now has one of the highest homicide rates in the world. But this was part of a general Latin American trend, and what’s more, could just as easily be attributable to a regrettable if admirable surfeit of humaneness in the Venezuelan criminal justice system (it has not had the death penalty since 1863).

Hugo Rafael Chávez Frías brought hope and a credible promise of a better tomorrow to a benighted country, and was the bane of the rootless cosmopolitans and comprador elites that hypocritically shrilled about his supposed corruption and selling out to Cuba even as they frantically shuffled their ill-gotten billions into Swiss vaults and dialed their CIA handlers for advice. Yes, he was loathed by the Latin American offshore aristocracy, the neocons, and the Guardianista-type, “humanitarian bomber” Pro War Left and Western chauvinists in liberal clothing. But he was also beloved of the millions of Venezuelans, who resisted oligarch media pressure and mafia-like “international community” and continued to give El Comandante – in some of the world’s cleanest and most transparent elections – term after term to implement his vision of a just and sovereign Latin America.

If it is true that one gets to know a man by his friends and enemies, then he qualifies as one of the very greatest national leaders of modern history. He now shuffles off this mortal coil, leaving behind his struggles and haters, and ascending to the realm of God, where he can contemplate the crystalline tranquility of the cosmos; but the light of the Bolivarian Revolution that he ignited on this lower plane of existence will endure – and continue shining hope into the hearts of men all over the world unto the ages of ages.

PS. For more statistics and objective assessments of Chavez’ achievements, consult Mark Weisbrot’s classic, “The Chávez Administration at 10 Years: The Economy and Social Indicators.

(Republished from AKarlin.com by permission of author or representative)
 
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Not often that you see Russia in some color other than bloody red on a world map of corruption or institutional quality. But according to the Open Budget Index (2012 results), the Russian budget is actually pretty transparent as far as these things go.

Of the major countries, only the UK (88), France (83), and the US (79) are ahead. The other major developed countries in the survey like Germany (71), Spain (63), and Italy (60) are all behind Russia (74), as are its fellow – and supposedly far cleaner – BRICs fellows Brazil (73), India (68), and China (11). Of perhaps greater import, only the Czech Republic (75) edges above Russia in the CEE group, whereas all the others – Slovakia (67), Bulgaria (65), Poland (59), Georgia (55), Ukraine (54), Romania (47), etc. – lag behind it. Also noteworthy is that Russia’s typical neighbors on Transparency International’s CPI, such as Zimbabwe (20), Nigeria (16), and Equatorial Guinea (0), reveal almost nothing in their national budgets.

Now of course the Open Budget Index is not the same thing as corruption. You can have an open budget but still steal from it (and this does happen in Russia frequently), and you can also have a closed budget from which few people steal, at least directly (as was the case in the USSR… or to take a more modern example, while Russia’s OBI is now higher than Germany’s, it is inconceivable that state corruption is even in the same league in these two countries).

Nonetheless, there is surely a very significant degree of correlation between the two. Having an open budget means that it is can be subjected to scrutiny; were Russia’s budget closed like China’s or Saudi Arabia’s, Navalny’s work to expose corrupt state tenders would be simply impossible (as it is, the latest ploy corrupt bureaucrats have been forced to resort to is to sprinkle Latin characters into the Cyrillic texts of state tenders so as to confound search engines).

Second, a high OBI score demonstrates the state’s commitment to fighting corruption. If Putin and Co. really didn’t care and were truly the kleptocrats they are repeatedly labeled as by the Western media, they would instead do everything in their power to hide the budget so as to remove the possibility of scrutinizing it. But they don’t. To the contrary, Russia’s OBI has increased from year to year.

As we can see above, Russia’s budget transparency in 2006 was… about middling; consistently below developed world standards, but higher than plenty of Third World countries and even quite a few CEE countries. But by 2012 it was 10th out of 100 countries. If Russia’s government were truly only committed to stealing as much as it possibly could why would it bother with the legislative and institutional improvements that enabled such a change in rankings?

It is now the most transparent of the BRIC’s, having overtaken both (consistently transparent) Brazil and (also rapidly improving) India in 2012.

Of most pertinence, Russia has massively improved its relative position to other CEE countries; only the Czech Republic and Georgia under Saakashvili have registered such appreciable improvements. To the contrary, both Poland and Romania actually registered declines in their overall levels of budget transparency.

Russia no longer even trails the developed world in this regard.

I would also note that this chimes with the findings of the Revenue Watch Index, which found Russia to be one of the world’s best countries at reporting information about revenue from the extractive sector. This in particular goes against the widespread trope of shady siloviki appropriating all the proceeds from Russian oil and gas and murdering the investigative journalists who go after them.

Conclusions

Once again I would like to emphasize that the OBI does not measure corruption. For instance, China is nowhere near as corrupt as the numbers indicate here; FWIW, my own impressions from perusing various indices and reading comments boards from both countries is that “everyday” corruption is somewhat higher in Russia and elite-level corruption is comparable. Nonetheless, the OBI is an objective measure, drawn from concrete metrics, and that alone makes it superior to Transparency International’s CPI, which is a measure of corruption perceptions.

To remove any possible insinuation that I only castigate the CPI because it ranks Russia abysmally low, I would ask the following question: Is it really plausible that Italy is more corrupt than Saudi Arabia, as implied by the CPI, when there is such a vast gulf in their levels of budget openness and other objective assessments of institutional quality?When we actually pretty much know that a substantial chunk of Saudi Arabia’s budget goes into feeding the country’s 15,000 odd princes… that the very country is named after the family that rules it? I find that very improbable. I would suggest it is somewhat more likely that the “experts” and businessmen asked to assign CPI ratings simply bumped up the Gulf states for their (admittedly) very generous and sumptuous hospitality and their pro-Western policies; all factors that would work in the reverse direction in the cases of countries like Russia, or Venezuela.

Still, all that is speculation. Much like the CPI itself. Back in the world of concrete statistics and facts, I think this further confirms my basic thesis on Russian corruption, which goes something like this:

  1. It was extremely high during the 1990′s.
  2. It declined at a steady if not breakneck rate (media narrative – it keeps getting worse every single year under Putin).
  3. The state itself is moderately but not extremely interested in curbing corruption (media narrative – Russia is a “mafia state”).
  4. Today, Russia is not an outlier or an anomaly on corruption when compared against Central-Eastern or Southern Europe. To the contrary, it is comparable to the worst-performing European countries (e.g. Hungary, Romania, Greece), and about middling in the overall global corruption ratings. (media narrative – “Nigeria with snow”).
  5. It continues to improve at a slow but steady pace.

For more information see my Corruption Realities Index, which I developed in 2010 and takes into account the OBI when computing corruption levels.

(Republished from Da Russophile by permission of author or representative)
 
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My latest contribution to the US-Russia.org Expert Discussion Panel this one focusing on whether the West foregoes “incalculable benefits” by continuing the Cold War. Unlike previous Panels, on which I aimed for balance, here I make no apologies at pointing a finger straight to where I believe the blame belongs:

I recently began reading Martin Malia’s Russia under Western Eyes. One of the key points he makes early on is that the Western view of Russia has rarely corresponded well with its objective strength or the actual threat it posed. To the contrary, it is when “institutions and culture” converge that the West’s “evaluation of Russia tends toward the positive”; when they diverge, the reverse. So by that theory, relations should be pleasant: After all, not only is it no longer a military threat, but in terms of political systems and values, the West and Russia are far closer now than they have even been in history.

This makes it all the more puzzling that half the US foreign policy establishment remains entrenched in Cold War thinking. Romney belongs to them. A man who now has a 39% chance of becoming President, according to Intrade, declared Russia to be a “our number one geopolitical foe.” But unlike the case in the Cold War, it is a divergence that now most afflicts the US and its satellites – namely, the idée fixe that it is globally “exceptional”, and thus called forth to express global “leadership.” This translates into the belief that it can dictate its terms – from support for the Iraq War to the pursuit of Wikileaks – to other powers without negotiation (anything else is appeasement!), and woe unto the VIRUS’s that oppose it (a cute neocon acronym standing for Venezuela, Iran, Russia).

Needless to say, such attitudes make mockeries of any genuine democracy promotion. As long as you pay the requisite cultural tribute, you get off scot free – “Bahrain’s bosses understand modern symbolism about minorities so well that the Arab kingdom’s ambassador to Washington is a Jewish woman.” They might not understand the Hippocratic Oath near so well, imprisoning doctors for treating wounded protesters, but that is of little consequence next to anti-Iranian orientations and the US naval base there. Meanwhile, Venezuela is demonized by the Cold Warriors for daring to elect a socialist to power in Latin America, even though it has some of the structurally freest and fairest elections in the world. Their hatred of Russia ultimately boils down to the same roots: It resists.

There are three ways this impasse can end. The first, and most incredible way, would be for the residual Cold Warriors to stop thinking of the world in Manichean terms, with themselves playing God’s role. The second would be for Russia to become a client state of the US. This is not going to happen short of the likes of Gary Kasparov and Lilia Shevtsova coming to power.

The third possibility is by far the likeliest, as it is already occurring. Back in the 1990’s, Western Diktat politics in relation to Russia typically worked because it was in crisis, and had no other powers to work with. They believe this is still the case, and not only the neocons: In 2009, Biden said Russia had a “shrinking population base… a withering economy”, and a banking system unlikely to “withstand the next 15 years.”). This would presumably give Russia no choice but to fall in line. They are wrong. In real terms, the Chinese economy may have overtaken the US as early as in 2010; a constellation of other sovereign, non-Western powers such as Brazil, Turkey, India, and South Africa are attaining new prominence. With the EU in permaslump, the US and Japan under accumulating mountains of debt, and oil futures now permanently sloped upwards, a new world is arising in which modernization is no longer synonymous with Westernization. Russia is one of its key players, just like the other BRIC’s.

One can’t resist gravity forever. Once the requisite relative political, economic, and cultural mass is no longer there, ideological Cold Wars will become as unsustainable as Western hegemony itself.

(Republished from Da Russophile by permission of author or representative)
 
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Chavez won. The comprador candidate got sent packing.

As, indeed, 80% of the pre-elections polls predicted.

I fully expect the usual democratist presstitutes to cry foul in the coming days. Not because the Venezuelan elections were unfair – though they will doubtless be claimed to be so by the organs of imperialist propaganda like the WSJ – but because their real wish is to dissolve the Venezuelan people and elect another.

PS. Must-read: Why the US demonises Venezuela’s democracy by Mark Weisbrot.

(Republished from AKarlin.com by permission of author or representative)
 
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A collection of news stories and my take on them from the past month or so.

1. Bribes are growing quickly in Russia. Their average sizes, that is. It was reported by the MVD that they increased by 5x from a year earlier to $10,000. The usual Russophobe suspects wasted no time declaring this to be further evidence of the uncontrolled, unstoppable Blob-like growth of corruption in Russia. But let’s use common sense for a minute. If average bribe amounts are increasing by such huge percentages, surely it means one or both of two things: (1) Investigations are moving higher up the chain of command, where quantities are bigger; (2) Paying bribes is becoming riskier, so – as with illegal drugs – the margins providers demand also increase. Either are good developments, no?

2. Russian readers, e.g. at Inosmi, were shocked to discover Russia renting out agricultural land to Asian farmers to grow food. Talk of “colonial takeovers”, “resource appendages”, etc. What many studiously ignore is that colonialism in the true sense consists of settlers with guns taking over the lands of aborigines with spears. This is patently not the case with Russia. To the contrary, it is a relatively easy and excellent way to earn foreign currency and create development in rural places – and a practice that will become increasingly prevalent in the decades ahead as agricultural yields in the south plummet due to the advance of climate change.

3. Did Russia experience a uniquely disastrous collapse in the 2008 crash, thus proving its unfitness for BRIC’s and the G8? Not really. According to this recent chart in the Economist, by the most objective measure taking the whole period of the global recession into account, Russia doesn’t actually do too badly. In fact it outperforms every single developed country, with the exception of Taiwan, Korea, and Poland. The -7.9% GDP drop in 2009 looks big, except when you consider that most of Russia’s recession was packed into that single year. It’s growth for the past decade as a whole is also entirely respectable, coming 27th out of 179 countries.

5. The Russian government respects and listens to opinion polls. The horror! Real democracies only listen to lobbyists.

Seriously, they might be derided as fickle, etc. – I remember some newspapers bizarrely lauding Tony Blair for his ” bold leadership” in taking the UK to war in Iraq against the will of the British people – but the fact is that opinion polls are the best proxy of the people’s voice that we have and as such a political leadership that orients itself towards opinion polls is the most purely democratic one absent rule by referenda.

This logic is highly disturbing to Westerners. Its implication is that Russia, or even China – which is experimenting in several regions with “deliberative dictatorship”, in which policies and spending are determined on the results of opinion polls – may be more democratic than, say, the United States, where priorities are distorted by moneyed special interests. For instance, multiple polls show that vast majorities of Americans favor tax increases on the wealthy as part of any attempt to balance the budget, but one of the two parties of power is adamantly opposed to this. So any such an initiative is dead in the water.

6. Further food for discussing Russia’s prospects in the next global crisis.

One of the main themes seems to be that its economy isn’t as leveraged as it was before, so a block-up in credit wouldn’t be so critical now.

7. REPORTING THE BRITISH RIOTS. Highly recommended post by Alex Mercouris.

8. Huge Chavez is moving Venezuela’s gold reserves back home. This is a wise move. The West has a proclivity towards seizing the assets of countries they dislike, using human rights abuses real and alleged as fig leaves – sometimes, human rights abuses in response to disturbance their intelligence agencies foment themselves. In his years of power, Chavez has proved that an alternate route of more equitable development is both possible and preferable to neoliberalism. So the West hates him.

He is also moving Venezuela’s cash reserves out of Western nations to China, Russia, and Brazil. This is just common sense under current conditions. Despite massive fiscal stimulus and monetary loosening, much of the Western world appears to be slipping into recession again. Even Germany. This will keep revenues depressed, torpedoing any hope of solving the massive budget deficits throughout the US and Europe. The time will approach sooner or later when mainstream investors come to view their debts as worthless.

9. The spread of Four Hour Workweek ideas into Russia? As reported, many Muscovites are beginning to rent out their apartments in the high-priced capital while living and traveling across South-East Asia or Central America. If they work, they do so through the Internet, for Russian (or Western) salaries.

That said, I’ve no doubt the Russophobes will seize on this as yet another apocalyptic wave of emigration and further proof of Russia’s rottenness.

10. Russia’s demography results are out for the first half of 2011. I’ll have a more detailed post out in a while, seeing as Russia’s demography is one of S/O’s interests, but in summary: birth rates and death rates both fell by about 3%. The rate of natural decrease improved slightly from 142,000 to 138,000. Net immigration increased from 90,000 for the first half of last year to 144,000 for the first half of this year. So the population is basically at a standstill this year so far (after small growth in 2009, and small decrease in 2010). If the trends remain similar, and in the light of a non-repetition of the 2010 heatwave that artificially increased mortality, this year will probably eke out a small population increase.

(Republished from Sublime Oblivion by permission of author or representative)
 
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Everything’s going badly in Russia. Medvedev’s reforms are failing. The economy isn’t growing. It is moving from authoritarianism to totalitarianism (in stark contrast to civilized Western countries), and the motto “We cannot live like this any longer!” once again becomes an article of faith in the land – or well, at least among “the blogs on LiveJournal” and “the sites of the top independent and opposition groups” (who are of course totally representative of Russian public opinion). Citizens are fleeing the country like rats from a sinking ship.

Anyhow, unlike Eugene Ivanov who argues that media coverage of Russia has improved of late, I think the Western punditocracy remains every bit as wrong, idiotic and venal on Russia as it always was, and in this post I’ll use the recent WSJ article “Why Are They Leaving?” by Julian Evans as my foil (it’s illustrated with soc-realist posters of the worker and collective farm girl harkening back to the Soviet era; excusez-moi for crashing the party, but WTF do they have to do with anything in a story about Russian emigration of all things???).

“Russia’s small but educated middle-class is deserting the mother country in search of opportunities and freedoms elsewhere…” Thus from the get go the author makes the strong impression – and one that is decisively reinforced throughout the rest of the article – that Russia has a big emigration problem that is draining it of brains and talent. But let’s consult the statistics (as opposed to anecdotal evidence and online polls at Novaya Gazeta asking Russians whether they want to emigrate; yes, Mr. Evans cites the online readership of a paper written by liberal ideologues in support of his argument). Too bad for Mr. Evans, the statistics reveal his article for the sham it really is.

First off the bat, it is worth pointing out that Russia has a positive net migration rate. Far more people are going in than going out. This I’m sure will come as a shock to mindless consumers of Western media – conditioned as they are to think of Russia as a bleak wasteland full of starving nuclear scientists, hot girls wanting to score with rich British guys, and crooks desperate to park their ill-gotten assets into a Swiss bank account and get a second citizenship – but it is true nonetheless. Now granted this very minor factoid isn’t of direct relevance to the article, which is after all concerned about the disillusionment of Russia’s middle class and its growing flight abroad; nonetheless, failing to mention this inconvenient fact that many people in Central Asia, the Caucasus, and Ukraine are willing to go Russia not even once is misleading and hints at an agenda.

But the far more damning evidence is that even as regards those “civilized” countries that Russians have traditionally been emigrating to – the biggest recipient nations of Russians post-1991 were Germany, the US, and Israel – the flow of Russian emigrants had all but dried up by 2008. The overall net numbers of Russian emigrants to the world outside the post-Soviet space has been shrinking steadily from 1999, when it was at -72,000, falling to -26,000 in 2005 and just a few thousands by the late 2000′s. According to the Rosstat figures, from 2000 to 2010, the migration balance improved as follows for the five biggest host countries for Russian emigrants during that decade: Germany from -38,700 to -1,100; the US from -4,300 to -807; Israel from -7,900 to -133; Finland from -1,100 to -339; and Canada from -800 to -387. In the first four months of 2011, the migration balance actually turned positive relative to Germany and Israel (as it has already been for several years with another developed country, Greece). The graph below illustrates these trends.

[Click to enlarge. Stats for 2011 are annualized based on Jan-Apr.]

Julian Evans can cite any number of anecdotes he wants about how Russian businessmen are fleeing to Venezuela because “there are more opportunities to develop there”, or about the “young educated people” (because, of course, youth and education are synonymous with wanting to leave Russia) and “strongest and most gifted people” (quoting liberal ideologue Dmitry Oreshkin at Novaya Gazeta, 62.5% of whose online readership want to leave Russia) who can’t wait to set off for Notting Hill because of the “insecurity of property rights” in Russia. But his elitist fetish with the middle classes (that supposedly hate Putin’s Russia) blinds him and by extension his readers to the larger reality, which is that emigration is very small and continues to decrease into this year. The actual statistics flatly contradict his ramblings, and as such Julian Evans remains about as credible as… well, the same hack who six years ago was expounding on the “green Stalinist light” in Gleb Pavlovsky’s office.

Now you may at this point want to rejoinder… but AK, aren’t you a big fan of opinion polls? Didn’t you just a few days ago try to use them to argue that Russian elections aren’t rigged? And don’t Levada’s opinion polls indicate that quite a lot of Russians really do want to emigrate – 22% of them as of May 2011, up from 13% in 2009 – thus confirming Evans’ and Oreshkin’s arguments? Well, just as there are lies, damn lies, and statistics, there are opinion polls, and then there are opinion polls. Some signify more than others. For instance, in the aftermath of Bush’s election win in 2004, some Americans loudly declared they were fed up with it all and were ready to hop over the border to Canada… but when the time came to walk the walk (as opposed to talk the talk), the migration flows to Canada didn’t change in any perceptible way. That’s because just being fed up with domestic politics – that is what Evans alleges is the main reason for the “educated middle-class deserting the mother country” – is, in most cases, a frivolous reason for making a life-changing decision such as emigration, and while many might think about it in their idle moments very few follow through on it.

If you don’t believe me, let’s return to the opinion polls again. Back in 2006, The Daily Mail reported that 13% of Britons wanted to leave the UK in the near future (as you may know there has NOT been a massive flood of British hordes out of the island since, my own case and that of random drunken revelers in Prague regardless). By 2010 this figure had leaped up to 33% – higher than the percentage of Russians saying they want to leave now, BTW (and that’s despite those awesome “rule of law” and “civilized values” things that Russian liberals like to harp on about when it comes to any Anglo-Saxon country) – but nonetheless, we still see no mass exodus from Albion. Why the discrepancy? Return to that Levada poll and look at the breakdown of answers more closely. 22% of Russians may be thinking of leaving, but only 1% are actually packing their bags.

And this brings us into what should be the main starting point of any discussion about the future of Russian emigration: why would they want to? All this currently fashionable twaddle about property rights or rule of law being a major driver isn’t convincing; it’s certainly no worse than it was in previous years, and if anything is showing signs of improvement. Why would the middle-class (which is as happy as any other social group with Putin) decide to take a hike right now? Let’s be serious. In previous years, there were only two main groups of emigrants: (1) the vast majority were ethnic minorities, such as Jews and Volga Germans, returning to their national homelands; (2) educated professionals from academia who were earning breadcrumbs from Russian academic institutions with no opportunities for original research. Almost all those who would ever emigrate from the first group have already done so (see the vast decrease in emigration to Israel and Germany). Meanwhile, anybody who has been following the issue will know that the salaries of state workers have been increasing at rapid rates in recent years, including those of academics; true, the increases were from a very low base and absolute salaries remain far lower than in fully developed countries, however if the emigration statistics are anything to go by (and with the help of Russia’s lower relative prices) salaries have now reached a level that allows for a rough balance between immigrants and emigrants. In other words, the situation with Russian academia vis-à-vis the world now largely resembles that those prevailing between developed nations – scientists are free to have scientific exchanges, but with the vast majority of researchers returning to their home countries after a stay of several months or years.

PS. More details here: Гуд бай, Америка: Эмиграция из России в США достигла минимума.

Also see Nikolai Starikov’s Как создаются либеральные мифы for an account of how liberals used misquotes to create the impression that Russia is facing a second emigration wave.

(Republished from Sublime Oblivion by permission of author or representative)
 
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The most famous corruption indicator is Transparency International’s Corruption Perceptions Index. Its only problem is that the perceptions of their self-appointed experts have nothing to do with reality!

As I explained in previous posts on this blog, it suffers from numerous flaws. Part of it has to do with its questionable methodology: using changing mixes of different surveys to gauge a fluid, opaque-by-definition social phenomenon. Another is its reliance on its appeal to authority, the theory being that “experts” in business and think-tanks know more about corruption relative to anyone else. Countries with more regulations are systematically prejudged, as are those facing hostile media environments such as Russia or Venezuela. Above all, the CPI doesn’t pass the face validity test – in other words, many of its results are frankly ludicrous. Is it truly plausible that Russia (2.1) is as corrupt as failed states like Zimbabwe (2.4) or D.R. Congo (2.0), or that Italy (3.9) is more corrupt than Saudi Arabia (4.7) which is a feudalistic monarchy!?

This suggests that we urgently need another, more objective index. Thus I present the Corruption Realities Index (CRI)!

Unlike my previous attempt at this, the Karlin Corruption Index – which was rightly critiqued for being no less subjective than the CPI (though I do believe it was more accurate) – this time round I am drawing on real world data. In particular, there are three corruption indices that aren’t as well known as the CPI, but far more useful.

One of them is Transparency International’s less well-known Global Corruption Barometer. Every year, they poll respondents on the following question: “In the past 12 months have you or anyone living in your household paid a bribe?” The answers hint at the prevalence of corruption in everyday life, as experienced by a sample of normal people, and as such they almost certainly offer a better picture than the perceptions of experts who are prone to the narrative fallacy and are unduly influenced by the ideological biases of the international business media (e.g. op-eds in The Economist or the WSJ). A good example is the reputational fallout Russia experienced in the wake of the prosecution of Mikhail Khodorkovsky, which saw its CPI retreat despite the lack of any noticeable increase in corruption on the ground.

Another key resource is the Global Integrity Report, which evaluates countries on their “actually existing” Legal Frameworks and Actual Implementation on issues such as “the transparency of the public procurement process, media freedom, asset disclosure requirements, and conflicts of interest regulations.” This involves line by line examination of the laws in question, and the “de facto realities of practical implementation.” Crucially, the assessments are blindly reviewed by a panel of peer reviewers and outside experts, which is an important antidote to bias.

Finally, there is the International Budget Partnership, which – believe it or not – assesses budget transparency and accountability. It compiles an Open Budget Index on the basis of factors such as budget documents availability, and the effectiveness of oversight by legislatures and supreme audit institutions. People who think of Eastern Europe as a black hole of government corruption will be surprised to learn that it is the best performing region after the developed world, while the Middle East, China, and sub-Saharan Africa are distinguished by their opacity.

Data from all three sources – to the extent that it is available – is amalgamated and fed through a formula to produce the Corruption Realities Index.

GCB is the percentage of people saying they or their households paid a bribe in the past 12 months from 2010 data. GILF is the Global Integrity Legal Framework score. GIAI is the Global Integrity Actual Implementation score. Most Global Integrity data is from 2007-2010. OBI is the Open Budget Index score from 2010 data. The CRI is the Corruption Realities Index. More details are given at the bottom of the table.

Country GCB /% GILF /100 GIAI /100 OBI /100 CRI
1 Denmark 0 10.0
2 UK 1 87 9.1
3 Norway 1 83 9.0
4 Korea, South 2 96 82 71 8.7
5 Finland 2 8.6
6 Netherlands 2 8.6
7 Switzerland 2 8.6
8 Germany*† 2 83 83 67 8.4
9 Portugal*† 3 86 86 58 8.3
10 Iceland 3 8.3
11 Australia*† 2 78 78 8.2
12 Israel*† 4 83 83 8.2
13 USA 5 90 78 82 8.1
14 Slovenia 4 68 8.1
15 New Zealand 4 90 8.0
16 Ireland 4 8.0
17 Brazil 4 85 66 71 7.9
18 Spain 5 84 74 63 7.8
19 Canada 4 90 61 7.8
20 Hong Kong 5 7.8
21 Georgia 3 86 58 55 7.8
22 Bulgaria 8 97 73 56 7.7
23 Croatia 5 57 7.7
24 France 7 87 68 87 7.7
25 Japan 9 91 76 7.7
26 Argentina 12 97 77 56 7.5
27 Taiwan 7 7.4
28 Latvia 15 93 76 7.3
29 Italy 13 84 71 58 7.1
30 Poland 15 86 71 64 7.0
31 Singapore 9 7.0
32 Austria 9 7.0
33 Czech Republic 14 84 64 62 6.9
34 Peru 22 93 70 65 6.7
35 Chile 21 87 66 72 6.6
36 Indonesia 18 92 56 51 6.6
37 FYR Macedonia 21 90 65 49 6.5
38 Vanuatu 16 84 55 6.5
39 Fiji 12 64 64 6.5
40 Kosovo 16 78 60 6.5
41 Romania 28 95 64 59 6.3
42 Armenia* 22 72 72 6.3
43 China 9 76 43 13 6.2
44 Hungary 24 83 62 6.2
45 Serbia 17 80 44 54 6.2
46 Russia 26 90 54 60 6.1
47 Colombia 24 89 49 61 6.1
48 Philippines 16 84 31 55 6.0
49 Malaysia 9 57 37 39 6.0
50 Luxembourg 16 6.0
51 Papua New Guinea* 26 69 69 57 6.0
52 Bosnia & Herzegovina 23 90 39 44 5.8
53 Thailand 23 79 50 42 5.8
54 Venezuela 20 84 39 34 5.8
55 Lithuania 34 85 63 5.8
56 Mexico 31 83 59 52 5.8
57 Greece 18 5.8
58 Moldova 37 89 59 5.7
59 Solomon Islands 20 63 52 5.6
60 Belarus 27 81 48 5.6
61 Turkey 33 75 57 57 5.5
62 Bolivia 30 78 56 13 5.3
63 Ghana 37 78 51 54 5.3
64 Ukraine 34 77 39 62 5.2
65 India 54 86 55 67 5.0
66 Pakistan 49 91 47 38 4.9
67 El Salvador 31 37 4.8
68 Azerbaijan 47 88 40 43 4.8
69 Lebanon 34 65 39 32 4.7
70 Mongolia 48 70 43 60 4.6
71 Kenya 45 62 45 49 4.5
72 Palestine 51 73 41 4.3
73 Sierra Leone 71 79 58 4.2
74 Zambia 42 36 4.1
75 Senegal* 56 65 65 3 4.0
76 Uganda 86 99 45 55 4.0
77 Nigeria 63 73 44 18 3.8
78 Vietnam 44 56 28 14 3.7
79 Cameroon 54 69 39 2 3.6
80 Iraq 56 75 32 0 3.4
81 Liberia 89 64 43 40 3.1
82 Afghanistan 61 21 2.8
83 Cambodia 84 58 30 15 2.6

* The Global Integrity scores for Legal Framework and Actual Implementation were given as one averaged figure, so bear in mind that
† Global Integrity scores were collected for 2006 or earlier, so may no longer be up to date.
The CRI for countries in italics was generated on the basis of only one piece of data, the percentage of people saying they or someone in their household paid a bribe in the last year. As such, their CRI has a high margin of error.

Formulas

  1. For countries with all four data points. (10-sqrt(GCB))*5 + (GILF + GIAI)/5 + sqrt(OBI) = CRI, with the GCB/GILF/GIAI/OBI weighted 50-20-20-10.
  2. For countries with no OBI. (10-sqrt(GCB))*5 + (GILF + GIAI)/4 = CRI, with the GCB/GILF/GIAI weighted 50-25-25.
  3. For countries with no Global Integrity data. (10-sqrt(GCB))*7.5 + sqrt(OBI)*2.5 = CRI, with the GCB/OBI weighted 75-25.
  4. For countries with only GCB. (10-sqrt(GCB))*10, with the GCB being the only weight by definition.

Needless to say, the accuracy of any CRI score increases with the amount of data it is based on.

I did not bother including any country that doesn’t have polling data on the prevalence of bribery over the past year, as it is an indispensable indicator. One can only hope that the Global Corruption Barometer will expand its coverage in the coming years, as the CRI depends so much on its data.

One major group of countries that isn’t assessed here, because of a lack of data, are the Gulf monarchies. If we make the (rather generous?) assumption than only 5% of their households pay a bribe in any given year, then based on the UAE’s and Kuwait’s Global Integrity scores and Saudi Arabia’s OBI, these countries will have the following CRI: Kuwait (6.2), UAE (6.7), Saudi Arabia (4.0).

This is but the beginning. I hope to search out more sources of data like the GCB, and keep expanding the Corruption Realities Index in the years ahead.

EDIT 05/26/2011: Note that there are going to be substantial internal variations for corruption within a country, as different regions will have varyingly corrupt bureaucracies and police forces. To take the example of Russia, for instance, a recent FOM poll indicates that the frequency of requests for bribes ranged from, say, 7% in Omsk oblast, to 31% in St.-Petersburg. This would translate into CRI scores of 7.3 and 5.9, respectively.

(Republished from Sublime Oblivion by permission of author or representative)
 
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Another Wikileaks cable – a secret one, not merely confidential – from our Caucasus ethnologist and bestest bud at the State Department, William Burns. Dated October 2007, it describes America’s perception of Russia’s global arms trade and emphasizes its concerns that many of its partners are “rogue” or “anti-American” states like Syria, Iran and Venezuela. However, Burns is intelligent enough to acknowledge that the Russians have their own economic, political and cultural reasons for doing things they way. Though obliged to provide suggestions on how to make Russian politicians see eye to eye with the US on the matter, it is likely a quixotic endevour.

Russia is expanding arms exports, seeking ties beyond its traditional partners India and China. (Burns correctly predicted that the Russia – China arms relationship will wane due to Chinese reengineering, copying and reproduction of Russian military products). The capture of most NATO and former Soviet markets by US and European military companies is the primary economic agent behind Russia’s courting of states that Washington has bad relations with. In reply to Western objections, Russia tends to reference “multilateral arms controls regimes (e.g. Wassenaar Group, MTCR, etc.), UN resolutions, or Russian law” in justification; and US protests against its entertainment of “Chavez’s grandiose regional visions” are believed, by the RF Foreign Ministry and Russian defense experts, to spring from “a “Monroe doctrine” mentality, and not real concerns over regional stability.” Finally, a lack of economic diversification actively PUSHES Russia into the arms trade: as Anatoly Kulikov pithily notes, “Russia makes very bad cars, but very good weapons.”

Burns then notes that the Russian MIC is an “important trough at which senior officials feed”, citing as an example “Russia’s decision to sell weapons that the Venezuelan military objectively did not need.” If true, isn’t this just Venezuelan stupidity or corruption? But according to Burns, this is because it’s in the “interest of both Venezuelan and Russian government officials in skimming money off the top.” Color me skeptical. According to Burns’ own sources, the 2006 arms trade between Russia and Venezuela totaled more than $1.2bn, and included “24 Su-30MK2 fighter-bombers and 34 helicopters”; more recently, the two countries began to negotiate the “sale of three Amur class submarines” in a prospective deal worth $1bn. This implies price tags of c.$50mn per fighter and c.$350mn per sub. However, according to my calculations, despite having unit production costs similar to Russia’s, the prices of US gear sold to Arab states are several times higher – c.$170mn per F-16 fighter to Iraq and a cool $360mn per F-15 fighter to Saudi Arabia. This implies that the US sells fighter jets of 1970′s vintage to at least one country AT A HIGHER UNIT PRICE than at which Russia sells its most modern diesel SUBMARINES to Venezuela! So not much spare room at Russia’s side of the “feeding trough”, at any rate…

Then it’s argued there is also a cultural element to Russia’s arms trade policy, namely, an “inferiority complex” with respect to the US that translates into a kind of overcompensating need to prove itself as an independent Great Power in the eyes of the world and its own citizens. This is meant to explain its desire for the “thrill of causing the US discomfort by selling weapons to anti-American governments in Caracas and Damascus.” These arguments are mostly sociological truthiness that I think don’t merit detailed rejoinders.

The analytical decline towards the end is reflected in toothless recommendations, such as a more concerted policy by European, Sunni Arab and Latin American governments, as well as the US itself, to pressure and cajole Moscow into easing back on its weapons sales to “rogue” and US-unfriendly states. Whether or not the recommendation was followed, it is evident that it’d be destined for failure, and I think Burns himself acknowledged this in the cable (“American concerns are interpreted cynically, as the disgruntled complaints of a competitor, and viewed through the prism of a 1990′s story line in which the West seeks to keep Russia down”).

Ultimately, with today’s Russia, it is geopolitics and quid pro quo deals that influence its conduct. To take one germane and ongoing example: The US made concessions during the Reset, e.g. easing back on US companies getting involves with Russia’s modernization and even mooting selling Russia some of its military techs; in return, Russia formally declined to sell the S-300 air defense system to Iran, thus (ostensibly) losing a major lever against Washington. But with the recent Republican victory and rumors of covert US rearming of Georgia, there appeared countervailing rumors of S-300 radar parts making their way to Iran via Russia’s proxy states. The lesson is one that Burns no doubt understands, but cannot state forthright: one rarely gets a free geopolitical lunch.

Reference ID Created Released Classification Origin
07MOSCOW5154 2007-10-26 02:02 2010-12-01 23:11 SECRET Embassy Moscow
VZCZCXRO9740
PP RUEHDBU
DE RUEHMO #5154/01 2990225
ZNY SSSSS ZZH
P 260225Z OCT 07
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC PRIORITY 4848
INFO RUCNCIS/CIS COLLECTIVE PRIORITY
RUEHXD/MOSCOW POLITICAL COLLECTIVE PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RUEKJCS/SECDEF WASHDC PRIORITY

S E C R E T SECTION 01 OF 04 MOSCOW 005154

SIPDIS

SIPDIS

EO 12958 DECL: 10/09/2017
TAGS PREL, ECON, MARR, MASS, PARM, PINR, PINS, RS
SUBJECT: ADDRESSING RUSSIAN ARMS SALES
REF: A. STATE 137954 B. MOSCOW 3207 C. MOSCOW 3139 D. MOSCOW 3023 E. MOSCOW 557 F. MOSCOW 402

Classified By: Ambassador William J. Burns. Reasons 1.4 (b) and (d).

1. (C) Summary: FM Lavrov’s disinterest in establishing an expert level dialogue on arms sales begs the question of how best to address our concerns over Russia’s arms export policy. Russian officials are deeply cynical about our motives in seeking to curtail Russian arms exports to countries of concern and the threatened imposition of U.S. sanctions has not proven successful so far in modifying Russian behavior. Russia attaches importance to the volume of the arms export trade, to the diplomatic doors that weapon sales open, to the ill-gotten gains that these sales reap for corrupt senior officials, and to the lever it provides the Russian government in stymieing American interests. While Russia will reject out of hand arguments based on the extraterritorial application of American sanctions, Russian officials may be more receptive to a message couched in the context of Russian international obligations and domestic legislation, the reality of American casualties, and the backlash to Russian strategic interests among moderate Sunni governments. In making our argument, we should remember that Russian officialdom and the public have little, if any, moral compunction about the arms trade, seeing it instead as a welcome symbol of Russia’s resurgent power and strength in the world. End Summary

Russian Arms Sales Matter

2. (C) Russian arms sales are consequential, totaling approximately USD 6.7 billion in 2006, according to official figures. This amount reflects a 12 percent increase over 2005, and a 56 percent increase since 2003. Russian arms sales are expected to total at least USD 8 billion in 2007. Russia has made a conscious effort to improve after-sales customer service and warranties, which has added to the attractiveness of its weapons. As a result, Russian weapons command higher prices than previously. Russia is ranked second only to the United States in arms sales to the developing world, and a sizeable portion of its arms trade is with countries of concern to us.

3. (C) While no sales were reported in 2006 to Iran, Syria, or Sudan, in 2007 Iran reportedly paid Russia USD 700 million for TOR-M1 air defense missile systems. While Syrian economic conditions are a natural brake on trade with the Russians, as a matter of principle the GOR is prepared to sell “defensive” equipment such as anti-tank missiles and Strelets (SA-18) surface-to-air missiles, as well as upgrade MiG-23 fighters. The GOR barred the sale of Iskander-E tactical missiles to Syria only after intense international pressure. Venezuela remains a growth market, with arms transfers in 2006 totaling more than USD 1.2 billion, including 24 Su-30MK2 fighter-bombers and 34 helicopters. Russia has an “open arms” approach to Venezuela, and whether it’s the transfer of more than 72,000 AK-103 assault rifles or negotiations for the prospective sale of three Amur class submarines (valued at USD 1 billion), Russia is prepared to entertain Chavez’s grandiose regional visions.

4. (C) Defense experts emphasize that the American and European domination of traditional NATO markets and capture of new entrants (and old Soviet customers) from Central and Eastern Europe means that Russia must court buyers that fall outside the U.S. orbit. By definition, Iran, Syria, and Venezuela are good markets for Russia because we don’t compete there.

5. (C) While concrete numbers are hard to come by, our best figures indicate that Russian arms sales to its traditional big-ticket customers — China and India — are growing. Russian experts, however, predict a declining trajectory in the medium term. In 2006, Russia completed approximately USD 1.4 billion in sales to China, including eight diesel submarines and 88 MI-171’s, which means the PRC only narrowly edged out Chavez as Russia’s most important customer. Russian defense experts underscore that as China’s technological sufficiency and political influence grow, the PRC will develop increasing military self-sufficiency and greater ability to challenge Russia as a supplier. At the same time, sales to India totaled only USD 360 million. Russia and India, in fact, have signed arms deals worth USD 2.6 billion, but not all deliveries and payments have been made. While Russian experts still downplay the ability of the U.S. to displace Russia in the Indian arms market, for reasons of cost and the legacy of decades’ old dependence, they recognize increasing American inroads and growing influence. Other notable Russian markets include Algeria, Czech Republic, Vietnam, South Korea and Belarus.

A Legalistic World View

6. (S) As the recent 2 2 consultations confirmed, Russian officials defend arms sales to countries of concern in narrow legal terms. In answering our demarches, MFA officials always identify whether the transfer is regulated by one of the multilateral arms controls regimes (e.g. Wassenaar Group, MTCR, etc.), UN resolutions, or Russian law. Senior officials maintain that Russia does take into account the impact on the stability of the region in determining whether to sell weapons and shares our concern about weapons falling into terrorists’ hands. This Russian decision-making process has led to a defacto embargo on weapons transfers to Iraq, where Russia is concerned over leakages to Iraqi insurgents and Al-Qaida; to a hands-off policy towards Pakistan, the country Russia views as the greatest potential threat to regional stability (with then-Russian Foreign Minister Igor Ivanov ruling out weapons sales to Pakistan as far back as 2003); and to a moratorium on “offensive” systems to Iran and Syria. Concern over leakage has prompted Russia to tighten its export controls, with the recent institution of new provisions in arms sale contracts for Small Arms and Light Weapons (SALW) that require end-user certificates and provide Russia the right to inspect stockpiles of weapons sold.

7. (S) What Russia has not done is accept our strategic calculus and rule out the possibility of sales to Iran, Syria, Sudan, or Venezuela. The arguments made are broadly similar:

– With Iran, we are told that that Russia will not sell any weapon that violates a multilateral or domestic regime, nor transfer any item that could enhance Iranian WMD capabilities. Sales, such as the TOR-M1 air defense missile system, are justified as being defensive only, and limited by their range of 12 kilometers. While DFM Kislyak told us October 18 that he was unaware of any plans to sell Iran the S-300 long-range surface-to-air missile system, MFA officials previously told us that such sales, while under review, would not violate any Russian laws or international regimes.

– With Syria, Russia also argues that its transfers are defensive in nature, and points to its decision to halt the sale of MANPADS. The MFA maintains that Russian weapons used by Hizballah in 2006 were not a deliberate transfer by the Syrian government, but involved weapons left behind when Syrian forces withdrew from Lebanon. Russia argues that tightened end-user controls will prevent any future transfers.

– With Sudan, the GOR denies any current arms trade with the regime, and maintains that Russia has not violated UN sanctions or Putin-initiated decrees. However, based on our demarches, it is clear that — in contrast to Syria — Russia has adopted a “don’t ask, don’t tell” approach to Sudan’s adherence to its end-use requirements for its existing inventory of Russian/Soviet weapons.

– With Venezuela, both MFA officials and Russian experts believe that a “Monroe doctrine” mentality, and not real concerns over regional stability, is behind U.S. demarches.

What Is Behind the Russian Calculus

8. (C) A variety of factors drive Russian arms sales, but a compelling motivation is profit – both licit and illicit. As former Deputy Prime Minister and senior member of the Duma Defense Committee Anatoliy Kulikov told us, “Russia makes very bad cars, but very good weapons,” and he was among the majority of Russian defense experts who argued that the laws of comparative advantage would continue to propel an aggressive arms export policy. While Russian defense budgets have been increasing 25-30 per cent for the last three years, defense experts tell us that export earnings still matter. The recent creation of RosTechnologiya State Corporation, headed by Putin intimate Sergey Chemezov, which consolidates under state control RosOboronExport (arms exports), Oboronprom (defense systems), RusSpetsStal (specialized steel production), VSMPO (titanium producer), and Russian helicopter production, is further proof of the importance the Putin government places on the industry.

9. (C) Likewise, it is an open secret that the Russian defense industry is an important trough at which senior officials feed, and weapons sales continue to enrich many. Defense analysts attribute Russia’s decision to sell weapons that the Venezuelan military objectively did not need due to the interest of both Venezuelan and Russian government officials in skimming money off the top. The sale of Su-30MK2 fighter-bombers was cited as a specific example where corruption on both ends facilitated the off-loading of moth-balled planes that were inadequate for the Venezuelan Air Force’s needs.

10. (C) A second factor driving the Russian arms export policy is the desire to enhance Russia’s standing as a “player” in areas where Russia has a strategic interest, like the Middle East. Russian officials believe that building a defense relationship provides ingress and influence, and their terms are not constrained by conditionality. Exports to Syria and Iran are part of a broader strategy of distinguishing Russian policy from that of the United States, and strengthening Russian influence in international fora such as the Quartet or within the Security Council. With respect to Syria, Russian experts believe that Bashar’s regime is better than the perceived alternative of instability or an Islamist government, and argue against a U.S. policy of isolation. Russia has concluded that its arms sales are too insignificant to threaten Israel, or to disturb growing Israeli-Russian diplomatic engagement, but sufficient to maintain “special” relations with Damascus. Likewise, arms sales to Iran are part of a deep and multilayered bilateral relationship that serves to distinguish Moscow from Washington, and to provide Russian officials with a bargaining chip, both with the Ahmedinejad regime and its P5 1 partners. While, as a matter of practice, Russian arms sales have declined as international frustration has mounted over the Iranian regime, as a matter of policy, Russia does not support what it perceives as U.S. efforts to build an anti-Iranian coalition.

11. (C) A third and related factor lurking under the surface of these weapons sales is Russia’s inferiority complex with respect to the United States, and its quest to be taken seriously as a global partner. It is deeply satisfying to some Russian policy-makers to defy America, in the name of a multipolar world order, and to engage in zero-sum calculations. As U.S. relations with Georgia have strengthened, so too have nostalgic calls for Russian basing in Latin America (which Russian officials, including Putin, have swat down). While profit is still seen by experts as Russia’s primary goal, all note the secondary thrill of causing the U.S. discomfort by selling weapons to anti-American governments in Caracas and Damascus.

Taking Another Run At Russia

12. (C) As FM Lavrov made clear during the 2 2 consultations, Russia will not engage systematically at the expert level on its arms export regime. While the prospect of Russia changing its arms export policy in response to our concerns alone is slim, we can take steps to toughen our message and raise the costs for Russian strategic decisions:

– Although U.S. sanctions are broad brush, the more we can prioritize our concerns over weapons sales that pose the biggest threat to U.S. interests, the more persuasive our message will be. Demarches that iterate all transactions, including ammunitions sales, are less credible. Since Lavrov has rejected an experts-level dialogue on arms transfers, it is important to register our concerns at the highest level, and to ensure that messages delivered in Moscow are reiterated in Washington with visiting senior GOR officials.

– In the context of potential violations of international regimes and UNSCR resolutions, Russia needs to hear the concerns of key European partners, such as France and Germany. (In the wake of the Litvinenko murder and subsequent recriminations, UK influence is limited.) EU reinforcement is important for consistency (although Russia tends to downplay the “bad news” that European nations prefer to deliver in EU channels, rather than bilaterally).

– Regional actors should reinforce our message. Russian weapon sales that destabilize the Middle East should be protested by the Sunni Arab governments that have the most to lose. Given Russia’s competing interest in expanding sales to Saudi Arabia and the Gulf states, the protests of our moderate Arab partners could also carry a price tag for Russian defiance. The same is true for Latin America, whose leaders to date have not made sales to Chavez an issue on their bilateral agenda with the Russians.

– The appearance of Russian weapons in Iraq, presumably transferred by Syria, and the prospect of American and coalition casualties as a result could change the calculus of Russian sales to Damascus. The more evidence that we can provide, the more Russia may take steps to restrict the Asad regime. At the same time, we need to be prepared for the Russian countercharge that significant numbers of weapons delivered by the U.S. have fallen into insurgent hands.

– Finally, providing the Russians with better releasable intelligence when arguing against weapons transfers to rogue states is essential. Our Russian interlocutors are not always impressed by the evidence we use to prove that their arms are ending up in the wrong hands. While we doubt Russia will terminate all its problematic sales for the reasons described above, more compelling evidence could lead the GOR to reduce the scope of its arms transfers or tighten export controls.

Final Caveat

13. (C) There are few voices in Russia who protest the sale of weapons to countries of concern and no domestic political constraints that tie the hands of Russian policymakers on this score. The pride that Russian officialdom takes in the arms industry as a symbol of Russia’s resurgence is largely shared by average Russians. American concerns are interpreted cynically, as the disgruntled complaints of a competitor, and viewed through the prism of a 1990’s story line in which the West seeks to keep Russia down, including by depriving it of arms markets.

Burns

(Republished from Sublime Oblivion by permission of author or representative)
 
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Sorry for not posting on either of my blogs for almost a week now and being slow on responding to the emails. I’ve been rediscovering the pleasures of old-fashioned book reading after purchasing a Kindle. I’m very happy with it. When faced between the choice of surfing the interwebs or reading a paper book, the former has been winning almost all the time in the past two years (see here for why h/t Oscar). The Kindle has somewhat rebalanced the equation.

Never fear. I’ve got a whole lot of post ideas in the chute, which will be forthcoming in the days ahead. But for now, I want to draw attention to an interesting dynamic in the Persian Gulf region. The rich Arab oil states – the UAE, Iraq, and now Saudi Arabia – are buying huge American arms packages. What the media has failed to cover is that the sales are at what are almost certainly massively overinflated prices.

Under the threat of Iranian missile attacks in the event of war, the UAE “concluded a $3.3bn Patriot missiles arms deal with the US” in December 2008 and is now looking for a $9bn deal for more air defense and Black Hawk helicopters. As a major oil export hub, this is much in its interests.

Then, coinciding with the US withdrawal of most troops from Iraq, the country concluded a $13bn deal to purchase American arms and military equipment, including “18 F-16 Falcon fighter jets as part of a $3 billion program that also includes aircraft training and maintenance”. Two years ago, Romania bought 48 F-16s for $4.5bn (half new, half used and modernized). That comes out at $95mn for each plane, whose current unit cost is now about $45mn. Iraq is now buying 18 F-16′s for $3bn, or $170mn for each. Anyone care to guess what percentage of that are kickbacks to Iraqi officials?

But if you think that’s impressive price gouging, take a look at the recent $60bn deal with Saudi Arabia. A modernized F-15 for the USAF costs about $60mn, including spares & support. About double that for export customers. So 84 F-15′s are $10.1bn. 70 upgrades to existing Saudi F-15′s. Let’s be generous and say it costs $80mn per plane, or 2/3 the cost of a new one. That’s $5.6bn. The unit cost of a Black Hawk helicopter is $14mn and of an Apache is $15.4mn. Let’s assume it’s around $30mn for export customers. In that case, 72 Black Hawks and 70 Apaches cost 4.3bn. All together, that’s around $20bn.

Of the $60bn deal, half of that will go just for the 84 F-15′s. That’s a cool $360mn for each one. That’s more than twice the unit cost of the fifth-generation F-22 Raptor! More even than its prospective export cost, which is about $250mn!

(Furthermore, note that the F-15′s are “monkey model” exports: due to Israeli concerns, “advanced sensors on the new Saudi F-15s will have technology built in to prevent them being used against their Israeli equivalents.”)

So in effect, the Saudis are paying $60bn for a package whose stand export price should be about $20bn. Massive profits to the US MIC (which will help it remain in the black despite Gates’ planned procurement cuts for budget reasons). Brilliant!

It’s not as if both Iraq or Saudi Arabia couldn’t have gotten better deals by shopping around elsewhere. A quick Internet search would show that there are plenty of fourth-generation planes available for well under $100mn per unit. For instance, since 2005, Venezuela has bought 24 Sukhoi-30MK’s, modernized 4.5+ generation fighters, for $1.6bn, after the US refused to supply F-16 spares to Chavez. (The whole $4bn package also included 50+ helicopters and missile defense systems). And I very much doubt that the US reputation for good after-sales maintenance can explain this big of a chasm.

So there must be ulterior forces at work, though as in the case of Iceland’s mercenary army, I can’t say which. Simple corruption on the part of Iraqi and Saudi officials? The influence of an occupying power? (The US, with its heavy military and intelligence presence in the Middle East, can easily pressure its client states, and what better way than to get their oil rich members to subsidize its MIC?). Rational calculation of national interests, i.e. maintaining good relations with the US? Discuss.

(Republished from Sublime Oblivion by permission of author or representative)
 
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At the recent Summit of the Americas in Trinidad, two great leaders, Obama and Chavez, shook hands in what could be the symbolic first gesture of reconciliation. Treasonous neocons will no doubt rush to condemn this as yet another limp-wristed and unilateral concession to “America’s enemies”, reminding their listeners that Chavez closed down opposition media, nationalized American assets and welcomed Russian warships and strategic bombers to his realm.

Yet their stubborn animosity is worse than just imperialist arrogance – it is stupid. They fail to realize that in the past decade Latin America in general, and Venezuela in particular, has become too politically mature to be easily manipulated into serving US (corporate) interests by economic hitmen, CIA operatives and their local surrogates. It is to Obama’s credit that he is willing to move from willful denial to cautious acceptance of the decline of overt American power in Venezuela and elsewhere.

For that is the new reality. The Venezuelan opposition is increasingly discredited for its unconstructive hostility to the government and extra-legal attempts to overthrow Chavez, one of which nearly succeeded in 2002. This resulted in blowback against the US for its covert involvement The government’s refusal to renew the licenses of opposition media outlets that seditiously backed the abortive coup is thus completely understandable, as is Chavez’ personal animosity towards Bush and outreach to other states in similar straits. Furthermore, it should be noted that the owners of newly nationalized companies, including American ones, were fairly compensated.

Meanwhile, within five years of taking real power in Venezuela, a corrupt, disorganized and class-ridden country, Chavez managed to a) double the GDP, b) halve the number of people living in poverty and c) drastically improve practically every indicator of social wellbeing from child mortality rates to inequality to tertiary education enrollment rates (I already covered these successes in prior posts). This does not mean that Venezuela is no longer a corrupt, disorganized and class-ridden country – it still is, to an extent – but the improvements are undeniable and Chavez enjoys high approval ratings. It is thus unseemly and dishonest of the Western MSM to excoriate Chavez as a thuggish populist strongman and economic illiterate.

Let us hope they take a clue from Obama. Or from Mark Weisbrot and his fellow authors, who in their latest paper, The Chávez Administration at 10 Years: The Economy and Social Indicators, give a glowing verdict on the achievements of the Bolivarian revolution.

Economic Growth: As you can see from the graph below, Chavez inherited an ailing, stagnating economy. From 1978-1998, Venezuela’s per capita GDP declined by 21.5%. Chavez was initially politically weak, with the state-owned oil company (PDVSA), the linchpin of the Venezuelan economy, controlled by forces intensely hostile to Chavez. Furthermore, they began to actively sabotage the economy from December 2001, when the Venezuelan Chamber of Commerce organized a general business strike against the government. This culminated in a two day military coup in April 2002 that temporarily unseated Chavez. Adding to the political instability and capital flight, the PDVSA oil strikes of Jan-Feb 2003 led to a short but severe recession.

After the oil strike and Chavez's consolidation of power, Venezuela racked up one of the highest growth rates in the world.

After the oil strike and Chavez’s consolidation of power, Venezuela racked up one of the highest growth rates in the world.

However, once the opposition were neutralized Venezuela managed to rack up very rapid growth. Even canceling out the post-recession recovery, GDP grew at an annual pace of 8.8% from the end of the shaded part in the graph above to Q2 of 2008, or at 6.9% in per capita terms. This is not an unimpressive achievement. The (mean) average Venezuelan increased his output as fast as the average Argentine, Indian and Russian during those years; from the major countries, only the Chinese did significantly better.

Furthermore, growth was broad-based and primarily private – contrary to media myths, the oil sector actually experienced negative growth from 2005-2007 after its quick initial recovery from the PDVSA strikes. Manufacturing grew at a respectable annual rate of 13.2% from 2004-2007. For all the ruckus over incipient statism with all its negative connotations, the public share of GDP declined.

Social Progress: The economy not only grew at an impressive tempo, but the benefits accruing to it were more equitably distributed than at any time in Venezuelan history. Despite the opposition-instigated economic reversals of his mid-Presidency, from 1999-2008, poverty more than halved from 43% to 26% and extreme poverty plummeted from 17% to just 7%. Its Gini index, a standard measure of inequality, dropped from 47 to 41 – though still high, it is extraordinarily egalitarian by Latin American standards and all the more impressive considering it came at a time of rising oil prices.

Infant mortality dropped from 19.0 / 1000 in 1999 to 14.2 / 1000 in 2008; post-neonatal mortality was cut by more than half. Food security improved through the Programa Alimenticio Escolar school-feeding program and the heavily subsidized Mercal network of government food stores. Despite fairly rapid population growth, from 1999-2007 access to clean drinking water increased from 80% to 92% of the population and access to sanitation increased from 62% to 82% of the population. These achievements were facilitated by impressive improvements in medical care – the numbers of physicians, hospitals and other medical facilities increased by almost an order of magnitude.

From 1999-2008 Venezuela finally achieved near universal primary school enrollment and near universal secondary enrollment. Participation in higher education increased by an astounding 138%. Since the extra human capital embedded in education is a vital prerequisite for longterm economic growth, Chavez laid very important foundations here.

Labor: Unemployment dropped, and naysaying propagandists to the contrary, not just because the state hired all the new people. Though employment in the public sector increased by around 50% since 1999 and its share of the total workforce increased from 13.1% to 16.6%, it was commensurate with the large expansion of the state undertaken under Chavez in the second half of his Presidency. However, it remains quite low by developed-country standards.

Government Finance, Current Account. Although the dramatic rise in oil prices helped, non-oil revenue also increased from 11.7% of GDP in 1998 to 14.2% of GDP in 2007 due to improved tax collection. Revenue and spending both increased, the government maintained a stable budget surplus. However, the state oil company PDVSA also had 6.1% of GDP in public expenditures – this, along with peak oil, is probably what caused Venezuelan oil extraction to fall. That said, I think leaving more resources in the ground for a time when they’ll become worth much more is in itself not a bad investment. Similarly, the current account stayed firmly in the black throughout.

For a more detailed discussion of Venezuela’s prospects during this world depression, please see Victimized Venezuela II: Beware of Schadenfreude. Suffice to say the situation is unlikely to turn critical and Chavez will remain politically secure, the wishes of some in the US foreign policy establishment regardless.

That said, there do exist serious problems in Venezuela – inflation, an overvalued bolivar, corruption, obstacles to small and medium business (SME) growth and crime… just to prove I’m not a chavista fanatic.

Problem – Exchange Rates, Inflation. After subsiding from a peak at around the time of the PDVSA strikes, inflation crept back up to around 30% since 2006, supercharged by soaring global food prices. However, since its exchange rate is fixed at 2,150 bolivars to one US dollar, the inflation contributed to massive over-valuation of its currency, estimated at more than 50%. This needs to be fixed if Venezuelan manufacturing is to become competitive and to dilute the economy’s dependence on oil rents – growth in this sector mostly ceased by 2008, and as of December 2008 was down by 25.4% from December 2007. Devaluation is also needed to narrow an awning budget deficit some expect to exceed 20% of GDP in 2009, a disturbing figure even by recent spendthrift standards.

Now that Chavez won the referendum on the abolition of term limits in February 2009 and given that the next Presidential election is in 2012, there are already signs of a stealth devaluation. Because subsidizing dollars is much harder with oil prices at 50$ instead of 100$ per barrel, the government is limiting the amounts of dollars Venezuelans can buy for foreign travel and are considering doing the same with luxury imports. Though Finance Minister Ali Rodriguez says a devaluation will not happen in 2009, a “multitiered exchange rate” is possible – that is, continuing the current peg only for vital imports such as medicine, food staples, and industrial machinery.

This will keep social discontent to a minimum (for a year or two, Venezuelans will have to live with fewer imported cars and cakes, but they’ll have bread). The boost in inflation will be counteracted by shrinking demand and general global deflation. Furthermore, Venezuela has low foreign debt, considerable reserves and China is keeping a floor under commodity prices by buying them up on the cheap across the world. Coupled with what already looks like an incipient recovery in emerging Asia, Venezuela, like Russia, should come out of the crisis relatively unscathed, leaner and ready to enjoy a second round of soaring oil prices. Meanwhile, Chavez is continuing to invest in long-term development by pouring money into infrastructure projects like building an extensive railway system – an excellent idea for the post-peak oil world.

Problem – Corruption, Obstacles to SME Growth. Venezuela is ostensibly the 158th most corrupt nation in the world, according to Transparency International. Yet as I noted in one of my very first articles for Da Russophile, Reading Russia Right:

While there’s no denying Russia is plagued by corruption, to suggest it is endemic like in a failed state is ludicrous – and would frankly be obvious to anyone who has visited the countries on that list. The problem with the CPI is that it’s a survey of outsider businesspeople and their subjective perception of the situation. While improving perceptions is an important goal, it does not necessarily correlate perfectly with reality. TI’s Global Corruption Barometer asks ordinary people how affected they are by corruption, for instance, have you paid a bribe to obtain a service this year? In 2007, 17% of Russians did – putting them into the same quintile as Bulgaria, Turkey and the Czech Republic. In other words, slap bang in the middle of world corruption, rather than at the end.

Pretty much the same argument can be made with Venezuela. In 2007, only 12% of Venezuelans paid a bribe to obtain services, basically the same proportion as the supposedly much cleaner Czechs.

The root cause of this is the sheer amount of restrictions on business in Venezuela – it comes 171st in Ease of Doing Business rankings. In this atmosphere, doing business in full compliance with all the laws and regulations is nigh impossible and forces enterprises into a constant search for shortcuts by reaching understandings with regional bureaucrats. This distorts the economy, dissuades investors and reduces the potential rate of economic convergence with the developed world. And lowers its position on the Corruption Perceptions Index

Yet ultimately, the important thing is to get stuff built – parasites skimming 10% off a project is regrettable, but not catastrophic. As long as a developing country has basic market mechanisms, a semblance of macroeconomic stability, an open economy and most importantly, high human capital, its economy will converge to developed country levels. Many deeply corrupt and bureaucratized countries (Italy immediately springs to mind) managed the transition and fell into economic stasis only after they got rich.

The current preference for short-term social gratification in place of faster diversification through manufacturing is lamentable, but perhaps unavoidable. Chavez operates under the same political constraints that conditioned the classical Latin American caudillo. Maintaining the acquiescence of the statist bourgeoisie, if not their active support, is key to retaining power, given their control over the traditionally tightly intertwined business-bureaucratic-military complex. It appears to me that this structure is being rapidly dismantled in Venezuela since 2003. (Paradoxically, by constructing a new elite drawn from the younger, educated proletariat, Chavez may well end up ushering in the conditions for a leaner, more effective capitalist economy).

Sociological speculations aside, it is however indisputable that Chavez is building the future more actively than any previous Venezuelan leader – despite the cancerous growth of bureaucracy, socialist tendencies and failure to reform the economy on his watch.

Problem – Crime. I am always skeptical about attributing crime trends, positive or adverse, to governments. They can influence them but can’t control them, for they depend on a great many variables inter-connected in ways little understood even by modern criminologists. That said, I thought it would be instructive to actually plot out Venezuela’s notoriously high homicide rates against other Latin American nations.

First, even by the time Chavez was inaugurated President in February 1999, Venezuelan homicide rates had a long, secular trend towards growth, much like Brazil and Jamaica.

Second, they peaked in 2003, at the end of a turbulent period of opposition-instigated anarchy. Since then homicide rates fell slightly, but it seems from the graph of Colombia that once entrenched, high homicide rates are very hard to reverse.

Third, there are allegations that the Venezuelan state contributes to the high homicide rates with its supposedly lax policies towards the “war on drugs”. Right-wing commentators lambast Chavez, left-wing commentators lambast the CIA, and in general the situation seems shady and unclear. I will not comment on these angry accusations and conspiracy theories (which might be true, who knows?) except to state the obvious and recommend global drug legalization.

Fourth, many of the big cities where crime is concentrated are actually run by opposition mayors.

Along with the likes of Colombia, South Africa and Iraq, the chances of violent death in Venezuela today are typical of a medieval society. By my rough calculations, at current rates every thirtieth Venezuelan can expect to be murdered during his or her lifetime. You really don’t want to be a young man living in a seedy Caracas slum nowadays…

Crime is no doubt a huge problem in Venezuela requiring the utmost attention and possibly draconian measures. Which will not happen, as Chavez is far too humanistic for that, and tradition-bound; Venezuela abolished the death penalty way back in 1863…

Problem? – Authoritarianism. Even Freedom House, a notoriously compromised organization, refrains from labeling Venezuela as Not Free. According the Economist Democracy Index, it is a hybrid regime much like that of Russia, Turkey or Georgia – neither a traditional liberal democracy nor an authoritarian state. The Polity IV Project, an academic database tracking democracy trends since the end of the Second World War, gives Venezuela 5 on a scale ranging from -10 (full autocracy) to 10 (full democracy). I suggest reading their 2007 Venezuela Report to anyone genuinely interested in its political status – their main complaint is on weak executive constraints.

Furthermore, democracy is no panacea. Chavez may have increased his personal power and perhaps this trend will intensify, yet he empowered communities by expanding local democracy, education and healthcare. Much of Latin America is enmeshed into backward, class-ridden systems wherein minuscule middle classes exploit the state to serve their own ends, while keeping the masses suppressed by neglect, ignorance, poverty and religion. Chavez is breaking Venezuelans free of this unholy matrix.

I once talked on a plane with a Venezuelan who lamented on the idleness and lack of curiosity of the people, and about how the equivalent of a small town is murdered there every year. Sounds to me like they need a good dose of revolutionary fervor directed towards building up the country. Hopefully the Bolivarian Revolution will sweep away the oligarchic degenerates into political irrelevance and Chavez will use the opportunity to build a modern industrial economy and reinstall liberal democracy once the heavy lifting is finished.

Yet in any case the US should not concern itself over his democratic or human rights credentials, be they fair or foul. Venezuela has Latin America’s biggest reserves of oil and its Orinoco tar sands could potentially hold as much oil equivalent as Saudi Arabia (though being hard to exploit they are worth much less). Although it exports much of its oil to the US, the Chinese have recently been getting in on the action in a big way, as part of their global strategy of locking up diminishing natural resources to fuel industrialization for a few more decades. Cutting off a major part of America’s economic lifeblood at a time of peaking global oil extraction in the service of abstract concepts like democracy is strategic folly.

Overthrowing Chavez and installing a pliant satrap is no longer realistic – the Venezuelan state is now stronger, Chavez is popular and the opposition is viewed as venal and discredited in the eyes of voters. Even from a military perspective, intervention is politically unacceptable and in any case becoming riskier year by year as the Bolivarian republic plows part of its oil windfalls into acquiring modern diesel submarines, air defense systems and Sukhoi fighter jets from Russia – a relatively cheap and effective way of negating American CVBG diplomacy.

Finally, in any case Venezuela has, interesting enough, the most positive outlook on the US of any major Latin American country – Chavez’s tirades to the contrary. This should provide further incentives for cooperation rather than conflict.

(Republished from Sublime Oblivion by permission of author or representative)
 
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The Western MSM (mainstream media) was abuzz the last few weeks about how Obama’s apparent extension of a hand to Russia did not make them willing to unclench their fist, citing the closure of the Manas airbase in Kyrgyzstan. This was linked to Russia’s announcement of 150mn $ in aid and 2bn $ of credit to Kyrgyzstan, which was widely interpreted to be a bribe, a snub to the US or in some particularly nutty cases open support of the Taliban – as SWP put it, “objectively chosen to aid 8th century religious fanatics”.

Kyrgyzstan is a poor state relying on remittances from its workers in Russia, workers who are now being laid off as construction grinds to a halt. It is the only country in post-Soviet Central Asia to have rejected the status of a “developed” country to be eligible for more funds from the World Bank and other international development organizations. Coupled with the economic crisis sweeping the globe, this money is small change to Russia but a life-saver to Kyrgyzstan.

The perception that this is a Russian anti-American machination arrogantly dismisses Kyrgyzstan’s own incentives. It has not been happy with the American presence (see below). It is in their interest to play off Washington against Moscow for more aid; but ultimately, Russia is far more important to their economic development. Nonetheless, it would make sense for them to announce the shutdown of Manas in Moscow, immediately after getting promised these loans and aid, because then American ire would be deflected towards Russia. (After all, the US does have a penchant for sponsoring color revolutions in countries it doesn’t like).

Finally, the claim that Russia is aiding the Taliban is totally bogus. Frankly, considering the number of US military bases dotting the Middle East (there’s fifty) means that this cannot be a serious concern, especially given that Russia has extended its own hand in offering transport of non-military supplies through Russia. This is despite the fact that the US has repeatedly snubbed Russia in that region (and elsewhere) – it explicitly supported the mujahedeen in the 1980′s via Pakistan and Saudi Arabia with dollars and Stinger missiles without holding their beliefs to much scrutiny, negotiated with the Taliban in hopes of being allowed to build oil and gas pipelines from Central Asia through Afghanistan and into Pakistan, bypassing Russian control – in stark contrast to Russia (and interestingly, Iran), who recognized the Taliban for the evil they are early on and supported the Northern Alliance against them and dismissed Putin’s overtures in 2002 acquiescing to an increased American military presence in Central Asia with abrogations of missile-defense treaties and colored revolutions. Getting ahead of myself here, but the point stands that Russia gains absolutely nothing from hindering NATO from effectively fighting the Taliban; when the alternative is doing this themselves.

I found the following article to be particularly insightful, which I see fit to quote in full – The Manas Disillusionment. I have highlighted the more significant parts.

Kyrgyzstan threatens to evict the US from the Manas airbase as Moscow trumps Washington with attractive aid packages, while Bishkek grows increasingly disillusioned with what it views as US usury, John CK Daly writes for ISN Security Watch.

By John C K Daly for ISN Security Watch

If those inside the Beltway are to learn anything from their Kyrgyz experience, it’s that Reaganesque “trickle down” economics in fighting a conflict halfway around the world is unlikely to buy local hearts and minds, much less allies.

Meeting with his Russian counterpart on 4 February in Moscow, Kyrgyz President Kurmanbek Bakiyev announced that he had decided to close the US airbase at Manas – a move that will complicate President Barack Obama’s stated intention to surge an additional 30,000 troops into Afghanistan and logistics for Operation Enduring Freedom.

When the Kyrgyz parliament votes on the president’s proposal, perhaps later this month, the measure is likely to pass, as Bakiyev’s Ak Jol party controls 71 of the legislature’s 90 seats. Under the terms of the Status of Forces Agreement (SOFA), the US will then have 180 days to vacate the base, located some 27 kilometers from the capital, Bishkek.

Manas was established on 4 December 2001 under the joint Kyrgyz-US SOFA agreement, which granted the Pentagon the right to use the airbase for a bargain rent of US$2 million annually. The Defense Department selected Manas because its 14,000-foot runway, originally built for Soviet bombers, could service US C-5 Galaxy cargo planes and 747s in their flight to Afghanistan. Of Kyrgyzstan’s 52 airports, Manas was the only one with a lengthy runway capable of supporting international flights. An adjacent 32-acre field was initially utilized for a tent city for US personnel, which beginning in mid-2004 was replaced by more permanent structures at a cost of US$60 million.

Manas is home to the 376th Air Expeditionary Wing and serves as the premier air mobility hub for NATO’s International Security Assistance Force (ISAF) and coalition military operations in Afghanistan. According to the US Defense Department, Manas handles about 15,000 passengers and 500 tonnes of cargo monthly. Last year, coalition KC-135s stationed there flew 3,294 missions disbursing 97,226 tonnes of aviation fuel to 11,419 coalition aircraft over Afghanistan and supported more than 170,000 coalition personnel transiting in and out of Afghanistan.

Pentagon blindsided

Judging by Washington’s reaction, Bakiyev’s decision blindsided the Pentagon – though in reality it is the culmination of years of American obtuseness, arrogance and penny-pinching, the warning signs of which have long been visible.

There is an atmosphere of faint hope in Washington that the announcement is in fact a negotiating attempt by Bishkek to up the rent for the base, but the State Department and Pentagon have been scrambling to find alternatives, holding discussions with Tajikistan, Uzbekistan and Turkmenistan while dispatching negotiators as far afield as the United Arab Emirates, Kuwait, Qatar, Bahrain and Turkey in case Bakiyev follows through.

The Pentagon was so certain that it was secure in Manas that last October the Army Corps of Engineers issued a pre-solicitation notice for potential contractors for up to US$100 million in improvements to the base. There were rumors that the Pentagon was also seeking an additional 300 hectares for expanding the base.

Moscow trumps Washington

While both Bakiyev and Russian President Dmitry Medvedev strenuously deny it, generous Russian loans totaling US$2 billion and a non-repayable US$150 million grant, announced the day before Bakiyev made his pronouncement, undoubtedly played no small part in the decision.

To put the proffered assistance in context, Moscow’s financial aid is worth double Kyrgyzstan’s current annual GDP, and the Russian assistance stands in stark contrast to Washington’s fiscal policy over the years towards Kyrgyzstan, which has never offered the country any loans.

But Kyrgyzstan is no stranger to haggling, and for now parliament has decided to delay the vote on closing Manas until it receives the first tranche of Russia’s promised US$450 million.

Besides the US$150 million outright grant, the Russian aid includes US$300 million in preferential credit for 40 years at a symbolic interest rate of 0.75 percent, with a grace period of seven years before the first payment is due.

An intergovernmental agreement signed during Bakiyev’s Moscow visit sets up a joint venture between Kyrgyzstan’s Elektricheskie Stantsii and Russia’s Inter RAO EES, and the bulk of the loan (up to US$1.7 billion) will go towards the construction of the 1,900-megawatt Kambar-Ata Hydroelectric Power Station-1 on the Naryn River.

Kambar-Ata epitomizes why Russia is currently in the ascendancy in Kyrgyzstan and the US is being shown the door. It is an indigenous energy project that has direct bearing on the quality of life for the average Kyrgyz. In contrast, the US for the last eight years has displayed indifference to Kyrgyzstan’s energy sector, as it is devoid of exportable hydrocarbons, viewing the country instead solely in military terms.

While much western commentary implies that the loans were ad hoc arrangements, in fact they represent part of US$2 billion in assistance to Kyrgyzstan first promised by then-president Vladimir Putin in August 2007, which in turn built upon a 15 December 2006 Russian-Kyrgyz agreement to spend US$1 billion to construct the Kambar-Ata-1 and Kambar-Ata-2 hydroelectric cascades. The project is a massive undertaking which on completion could not only supply electricity not only for domestic consumption but also for export to Afghanistan, China and Pakistan.

Against such largesse, Washington’s fiscal assistance to Kyrgyzstan looks miserly indeed. However, the Pentagon insists that the US has given Kyrgyzstan more than US$150 million annually in aid. Furthermore, it insists that it has been paying US$63 million in rent for Manas, but other sources, including the Kyrgyz government, say otherwise.

According to Radio Free Europe/Radio Liberty, funded by the US Congress, the US paid US$2 million a year to use Manas for the first five years of the base’s operation. In 2006, this was increased to US$17.5 million, while the US funded other in-country programs that totaled approximately US$100 million. On 6 February, Kyrgyz Finance Minister Tajikan Kalimbetova corroborated the RFE/RL figures to parliament, according to Informatsionnoe agentsvo 24 press klub in a 6 February report.

“There is not in Kyrgyzstan a single bank representing the interests of the United States, the trade balance is small, there is no major investment project involving US firms. There is sufficient economic potential, but very little use is being made of it, unfortunately,” Informatsionnoe agentsvo Regnum quoted Kyrgyz Prime Minister Igor Chudinov as saying on 7 February.

And for the average Kyrgyz, there has been no “trickle down” of the loudly proclaimed American assistance.

Kyrgyz disillusionment

The potential utility of Manas for the Pentagon is not limited to operations in Afghanistan; the fact that it is only 320 kilometers from the border with China’s westernmost province of Xinjiang means that tankers based at Manas put US aircraft within range of China’s nuclear test site facilities at Lop Nor in Xinjiang. Manas is a sore point with both the Russians and Chinese as it affords the US military the ability to snoop on their military activities.

Unease over the Pentagon’s possible uses of the airbase is not limited to Kyrgyzstan’s neighbors. Kyrgyz lawmakers have grown increasingly apprehensive with what the Pentagon might do with its untrammeled access to Manas.

On 21 May 2007, lawmaker Almanbet Matubraimov quoted remarks by US Secretary of State Condoleezza Rice that in case of a military offensive against Iran, the first air attack would be delivered from Manas, to which Iranian President Mahmoud Ahmadinejad promised that Iran would immediately reply by targeting the site from where the attack was launched, Informatsionnoe agentsvo AKIpress reported.

Two years after Manas was established, Russia founded its own airbase at Kant, its first outside of Russian territory since the 1991 collapse of the USSR, under an agreement within the framework of the Collective Security Treaty Organization, a post-Soviet regional security bloc that besides Russia includes Kyrgyzstan, Kazakhstan, Tajikistan, Uzbekistan, Armenia and Belarus. Kyrgyzstan is the only country in the world with both American and Russian bases on its territory.

At a popular level, Kyrgyz disillusionment over Manas developed gradually. When the base opened people hoped that there would be employment opportunities, but the only Kyrgyz hired to work were employed largely as janitors. According to Moskovskii Komsomolets, in 2005-2006, the salaries of these workers were not even paid. ISN Security Watch has not been able to independently confirm this report.

Shortly after Manas began operations, the Pentagon signed contracts with Manas International Services Ltd. and Aalam Services Ltd., the only two aviation fuel suppliers in Kyrgyzstan. Both companies were controlled by relatives of then-president Askar Akayev. In addition Aydar Akayev, the president’s son, was a part owner of Manas. The Pentagon also agreed to international civil aviation rates for the daily take-offs and landings of military aircraft at Manas to Akayev’s cronies as well. None of these Manas-related revenues were reported in Kyrgyz government budgetary statistics.

Following the “Tulip Revolution” which deposed Akayev, the two entities came under the scrutiny of the Kyrgyz government and FBI, but the Pentagon stoutly maintained its innocence regarding the US$207 million it spent on inflated fuel contracts. The new president, Bakiyev, insisted that the US make US$80 million retroactive lease payments and assist in recovering the allegedly purloined contract money. Pentagon spokesman Bryan Whitman responded that “any possible misappropriation of funds is an internal Kyrgyz matter.”

Other simmering complaints included a 26 September 2006 aircraft collision involving a KC-135 and the presidential Tu-154, for which the Americans declined to take responsibility, and the reportedly frequent dumping of tonnes of surplus fuel over Kyrgyz farms adjoining the base.

Things came to a head on 6 December 2006, when 20-year old US soldier Zachary Hatfield shot twice and killed 42-year-old Kyrgyz Aleksandr Ivanov, an ethnic Russian Kyrgyz, at the airbase’s entry gate. Ivanov worked for Aerocraft Petrol Management, which provides fuel services for Kyrgyz and international civilian aircraft. Hatfield maintained that he fired in self defense after Ivanov approached him with a knife. Adding to local anger was the fact that at the time of the shooting Ivanov was about 5-6 meters away from Hatfield and Ivanov’s knife was found 20 meters away from the site of the incident, while rumors swirled that the guard was drunk at the time of the incident.

The Kyrgyz government insisted that Hatfield be handed over for trial, but the US military spirited Hatfield out of the country on 21 March 2007 even as talks about Hatfield’s legal status were ongoing. Adding insult to injury, the US government initially offered Ivanov’s widow US$2,000 in compensation, an amount that Galina Skripkina, a lawyer representing Ivanov’s widow, described as “humiliating,” according to a 12 March 2007 Associated Press report.

Despite the Kyrgyz disillusionment, there are experts who believe that Bishkek’s latest threat is ill-advised. Dr S Frederick Starr, chairman of the Central Asia-Caucasus Institute & Silk Road Studies Program Joint Center, told ISN Security Watch that Kyrgyzstan’s move to close the Manas air base “is the wrong action done at the wrong time and in the wrong way.”

“It will send the clear signal that Kyrgyzstan has abandoned a balanced foreign policy. But it is not too late for the Kyrgyz Republic and US to work together to correct it,” he said.

Blinded by the perfidious Russian bear

Given the obvious disenchantment with the deal, only the most blinkered of Washington bureaucrats can have been surprised by Bakiyev’s 4 February announcement.

While recidivist Washington cold warriors are quick to see the perfidious Russian bear behind their ouster, in fact the Kremlin has thrown Kyrgyzstan a desperately needed fiscal lifeline even while Russia (along with the former Soviet Central Asian republics) has a desire to see ISAF stabilization efforts succeed in Afghanistan.

Russia’s ambassador to NATO, Dmitry Rogozin, succinctly summed up Moscow’s current thinking when he said, “In the event of NATO’s defeat in Afghanistan, fundamentalists who are inspired by this victory will set their eyes on the north. First they will hit Tajikistan, then they will try to break into Uzbekistan… If things turn out badly, in about 10 years our boys will have to fight well-armed and well-organized Islamists somewhere in Kazakhstan,” the International Herald Tribune reported on 24 January.

If the Obama administration is serious about making Afghanistan the focal point of its anti-terrorist operations, it might be forced to reexamine its relationship with Kyrgyzstan. Russia, China and India all have an interest in seeing the pacification efforts in Afghanistan succeed, and Russia has offered to open a supply route for non-military supplies, along with several Central Asian nations.

Washington may yet have an opportunity to remain at Manas, as Melis Erjigitov of the parliament’s press service stated on 11 February the Manas base closure bill was not on parliament’s agenda for February. But this is not likely to happen if Washington refused to change its mindset and one-up Russia in terms of aid.

Is Washington prepared to let Manas go? That is unclear, but a 10 February statement by Secretary of Defense Robert Gates indicates that Washington may give up and look elsewhere. “Manas is important, but not irreplaceable,” Gates said in a quote carried by the Washington Post on 11 February.

Regulars here will know that I don’t see Chavez as the demonic dictator he is frequently portrayed as in the media. In particular they’ve been having a field recently when Venezuelans voted in favor of overturning term limits for certain classes of elected officials, including the Presidency (and thus joined the leagues of such totalitarian regimes like the UK or Australia). Venezuela’s Referendum: Media’s Double Standards has more…

With Sunday’s Venezuelan referendum on term limits, we can expect to hear a lot about Venezuelan president Hugo Chávez’s “plan to become president for life” and its reflection on “Venezuela’s battered democracy”–as the New York Times editors put it (http://www.nytimes.com/2007/12/01/opinion/01sat2.html) around the time of Venezuela’s last (failed) term limits referendum.

But when Colombian President Álvaro Uribe’s efforts to change a constitutional prohibition barring a president from serving more than one term succeeded in 2005, the U.S. media took little notice, and Uribe’s reputation as the U.S.’s favorite ‘democrat’ in the region remained intact.

…It would seem the role of U.S. reporting and opinion on Venezuela (and Colombia) is less about informing the public about real threats to democracy and human rights in Latin America than it is about serving as a propaganda arm of U.S. foreign policy. One would be wise to remember this when reading about Venezuela’s referendum this weekend.

Finally, lots of stuff seems to be crashing into each other recently, from satellites to nuclear subs. Freaky. And not a bad metaphor for what is going on with the global economy. More on that this weekend, hopefully.

(Republished from Sublime Oblivion by permission of author or representative)
 
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As of today, it’s been exactly one year since I started the Da Russophile blog. Although I have been aware of hostile or condescending Western attitudes towards Russia for a long time, reflected in its mass media, I was finally provoked into joining battle by a particularly annoying and dishonest ‘editorial’ on the La Russophobe hate-blog.

This was and remains its motto:

Their Thesis : the Western media tells us Russia is in a death spiral,
its economy is one giant oil bubble, suffers from endemic corruption,
inequality and lawlessness and is presided over by a KGB kleptocrat
dead-set on resurrecting the USSR and launching Cold War II.

Our Antithesis : Russia is a normal country with a booming non-hydrocarbons
economy underpinned by a well-educated and secular workforce.
The Putin administration has affirmed democratic values, worked to improve
human rights and pursued Russia’s national interests abroad.

Your Synthesis : ?

I started off by writing serious ‘core articles’ on Reading Russia Right and Towards a New Russian Century, to demolish some common bearish stereotypes and illustrate how its inherent strengths (natural resources, a well educated population, etc) stood it in good stead for a twenty-first century characterized by economic convergence, technological growth, climate change and resource depletion.

My initial aim to provide a daily or at least weekly Russia news analysis proved too ambitious. I am a cyclical worker, capable of great feats of production over short periods but prone to long periods of idleness and procrastination (one nineteenth-century Russian historian attributed this quality to Russians in general, due to their long winters and short growing seasons). Thus in the end I couldn’t keep up a constant stream of news analysis, unlike the likes of Robert Amsterdam or La Russophobe – it simply required far too much time and organization, stuff I’m not well endowed with, and which doesn’t suit my character besides.

Where I shined, I think, was challenging the conventional wisdom about Russia. Contrarian pieces like Top 10 Russophobe Myths, Lying Liars and their Lies and Faces of the Future (my deconstruction of Russian demographic details, which show that the situation is far from the dire catastrophe usually portrayed by the Western commentariat) remain some of my favorites. I also specifically criticized coverage of Russia’s economy (The Trouble with the Economist) and the Ossetian War (The Western Media, Craven Shills for their Neocon Masters).

Speaking of which, I agree that sometimes my rhetoric is too shrill and detracts from my points (although it does draw attention). This is especially the stake when there is some considerable emotional stake in the issue – I made something like 30% of all original Da Russophile posts during and immediately after the Ossetian War. On the topic of which, Putin summarized Western attitudes better than I can: I’m amazed by their skills at seeing black as white, of portraying aggressors as victims and of blaming the real victims for the consequences of the conflict.

Although there is a real issue of discrimination against Russians in the Baltic countries covered extensively by human rights organizations like Amnesty International (and with which I find easy to sympathize – I haven’t met a single ethnic Balt who wasn’t hostile to my original nationality in real life, and their Internet intelligentsia like Peteris Cedrins or Giustino drip with venom whenever they mention it, barely concealed with a thin veneer of Western civility), on balance my reference to one particular graveyard-desecrating Baltic nation as eSStonia probably didn’t help my argument. Probably one of my bigger mistakes early on was taking my conception of myself as a ‘polar opposite’ to La Russophobe a bit too literally.

Of course, that’s pretty much impossible for me to accomplish. As I recently said to a commentator here, the only reason I ‘defend’ the Kremlin and Russia with such enthusiasm is because of the sheer degree to which it is misaligned or smeared in the Western press – be it out of ignorance or malice. (Although given my experience with Al-Jazeera, I lean towards the latter explanation). Believe it or not, when in the company of Russians too besotted of Putin or Russia’s greatness or whatever, I am often compelled to contradict them by pointing out some of their failures and cynicism or even just for the sake of argument instead of agreement. In fact, to let you on a little secret I think the most acute Russia commentator is not myself, but the likes of Sean Guillory, the people over at Peter Lavelle’s Google discussion group on Russia and perhaps even the eXile guys (jesters are the best at speaking truth to power).

The main reason I am “Da Russophile” in the English language is because far too many Westerners perceive Russia to be some special class of benighted murderous wasteland, whereas in fact I see it as essentially a ‘normal country’ with some admittedly pretty big problems. And since I don’t think a petty thief should be blamed for a murder with no evidence, nor do I think one can be neutral on a moving train (to borrow from Zinn), so I defend misaligned Russia and Putin (and at times Chavez’ Venezuela, and other people Western elites really don’t like but which in reality aren’t that bad, or good). Especially since the presiding judges, juries and executioners – the West – are themselves a bunch of petty crooks. Not that this approach wins any favors from either side…

Speaking of which, I’ve had the pleasure of corresponding with many of my readers as well as other incisive and decent Russia-watching writers such as Andy at Siberian Light, Eric Kraus, Sean, etc. Yet there’s been a fair amount of negative, impolite and I’m afraid to say, on a few occasions hateful, mail directed towards me, so I can only sympathize with Andy’s post on What is it with stupid people and Russia?, where he laments the prevalent Russophobe/Russophile dichotomy in discussions about that country. It will be a great day when this dialog can proceed in a mutually respectful and intelligent manner, but this day is far off, not when the (admittedly very popular) La Russophobe blog explicitly states as its mission to ‘expose’ and professionally damage those who seek to ‘justify’ Kremlin evil, and when a three-way discussion between Timothy Post, Craig Pirrong (Streetwise Professor) and myself identified religious zeal, polarly differing worldviews, and Russia’s supposedly historically exceptional path, respectively, as barring any fundamental agreement. Just like in the retarded Internet debates on abortion between atheists and Bible nuts… Let’s hope my pessimistic view is disproved.

Not that I’m a gray humorless sod (I think). I hope I’ve put smiles on a few faces by some tongue-in-cheek posts like <Russia of the Dead and Zen and the Art of Vodka Drinking.

Writing this blog has been a positive experience – it helps clarify and organize my thoughts, and I hope informs or entertains its readers. I also think that it has some real intellectual content and insights, in particularly my work on demography and Russia’s economic crisis. This was the main reason I decided to associate this blog with my name, Anatoly Karlin, when I moved from blogger to self-hosted WordPress at Sublime Oblivion, about two months ago.

This new structure also made it much easier for me to write about other things of interest (i.e. more than Russia). This is not to say that there was nothing of that in the old days – for instance, I had a bout of interest in healthy eating. The problem was that the blog name was, after all, Da Russophile, and so I was under some mental stress to try to associate everything with it. For instance, the main geopolitical and futurist ideas of Towards a New Russian Century, the vital role of education in economical growth explored in Education as Elixir of Growth were too much ‘forcibly associated’ with Russia-watching for them to be truly standalone articles on geopolitics or economics (I plan to rewrite and repost them). My partial solution was to make another blogger blog about six months ago called Sublime Speculations. Separate blogs, unwieldy infrastructure, lots of glitches, no self-hosting…although WordPress has a steep learning curve relative to blogger, in the end it is a vastly superior publishing system.

So now I can spend less time thinking about maintenance, and more time writing.

(Republished from Sublime Oblivion by permission of author or representative)
 
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Much like Putin’s Russia, Venezuela has been unfairly victimized by Washington’s foreign policy elite and savaged by the Western MSM, which have caricatured Chávez as a run of the mill Latin American populist strongman. In a previous post on this matter, I drew attention to the work of Mark Weisbrot at the CEPR, who has demolished these crude myths (The Venezuelan Economy in the Chávez Years). Under the Bolivarian regime poverty plummeted, access to high-quality healthcare, education and affordable food widened and the GDP skyrocketed by 94% from Q2 2003 to 2008.

Unable to criticize Venezuela on humanitarian grounds, the only option left open to the neoliberal ideologues was to claim that the Venezuelan economic miracle was nothing more than an ‘oil boom headed for collapse’. Unfortunately for them, the Venezuelan state kept a balanced budget, reduced its foreign debt from 47.7% of GDP in 2003 to 24.3% in 2007 and total interest on all public debt amounted to just 2.1% of GDP in 2006 – overall, a fiscal policy far more responsible than Washington’s itself. For 2008, the government assumed an oil price of 35$ per barrel; it is true that in practice the state spends beyond budgeted expenditures when oil revenue far exceeds the budgeted for price, so a fall in oil prices would trim government spending and growth. However, a budgetary crisis or economic downturn are very unlikely, since the government has more than 50bn $ of international reserves it can draw upon in a crisis.

That was the theory when Weisbrot published the paper in February 2008…but how does it stack up in the face of 50$ per barrel today?

In November Mark Weisbrot published another article, Oil Prices and Venezuela’s Economy. In the brief introduction, he reiterates the points made above and mentions that since US-Venezuelan economic links are weak, by far the most important direct external effect of the global economic crisis on Venezuela is the effect on oil prices, since that commodity accounts for 93% of its exports. The key question is how far oil prices must fall before the country begins to run an unsustainable current account deficit. (The current account is mostly the trade balance plus several other things like debt service payments, and is the main binding constraint for all developing countries since they cannot borrow as much, relative to their GDP or for as long, as developed countries with ‘hard currencies’, to meet their import needs. The central government budget can be covered in the local currency so it’s not as important).

Weisbrot begins by looking at various export scenarios. He assumed that the 7% of non-oil exports remain a constant 6.5bn $ per year.

After verifying PDVSA’s (Venezuela’s national oil company) export volumes, he took that as the high case (2.89 mbd) and after subtracting half the 0.54mn barrels exported on favorable terms to friendly nations under the PetroCaribe program, took the latter figure as the low case (2.62 mbd). As we see from the table above, exports remain respectable at 63.9bn $, even at 66$ a barrel (WTI-adjusted), whereas ‘estimates from Goldman Sachs, Merrill Lynch, and the International Energy Agency predict WTI prices of between $80 and $100 per barrel for 2009′.

Venezuelan annual exports under various oil price scenarios. NB: Above prices are for Venezuelan oil, which typically sells for 10% less than West Texas Intermediate.

Venezuelan annual exports under various oil price scenarios. (Above prices are for Venezuelan oil, which typically sells for 10% less than West Texas Intermediate).

Imports for 2008 are currently at an annualized 43.2bn $. Considering that this year did see a price spike, the average oil price for the whole year should remain at around 90$, thus providing about 90-100bn $ of export revenue and yielding a massive trade surplus of 50-60bn $ (or around 15-18% of GDP).

The new two years are summarized in the tables below for a range of oil prices, and using the lower export volume estimate (2.62 mbd). (In practice it might be a bit lower due to oil field depletion and OPEC quotas, but it will not change the overall picture to any significant degree.)

Oil @ 90$ / barrel 2008 2009 2010
GDP (bn $) 331.8 440.5 598.3
Imports (% GDP) 12.9 13.0 13.3
Exports (% GDP) 28.0 21.0 15.5
Trade Balance (% GDP) 15.0 10.5 7.2
Oil @ 80$ / barrel 2008 2009 2010
GDP (bn $) 331.8 440.5 598.3
Imports (% GDP) 12.9 13.0 13.3
Exports (% GDP) 28.0 18.8 13.9
Trade Balance (% GDP) 15.0 8.4 5.6
Oil @ 70$ / barrel 2008 2009 2010
GDP (bn $) 331.8 440.5 598.3
Imports (% GDP) 12.9 13.0 13.3
Exports (% GDP) 28.0 16.7 12.3
Trade Balance (% GDP) 15.0 6.2 4.0
Oil @ 60$ / barrel 2008 2009 2010
GDP (bn $) 331.8 440.5 598.3
Imports (% GDP) 12.9 13.0 13.3
Exports (% GDP) 28.0 14.5 11.7
Trade Balance (% GDP) 15.0 3.7 2.4
Oil @ 50$ / barrel 2008 2009 2010
GDP (bn $) 331.8 440.5 598.3
Imports (% GDP) 12.9 13.0 13.3
Exports (% GDP) 28.0 12.3 9.1
Trade Balance (% GDP) 15.0 1.5 0.8

As seen from the scenario above, Venezuela will almost certainly avoid a trade deficit in the next few years (let alone experience a balance of payments crisis), even if oil drops to and stays at 50$ per barrel – a highly unlikely outcome that would probably only come to pass in the event of a full blown global Depression.

Adding in interest payments on the sovereign debt does not change the big picture, since they currently only make up 2.2% of annual GDP. Even if, contrary to all expectations, the oil price remains at 50$ per barrel and Venezuela racks up a small current account deficit, it can be easily mitigated by the Central Bank’s 40bn $ of reserves and 37bn $ in other hard currency assets, which together make up a 23% of GDP cushion which ensures that any landing will be a soft one.

In conclusion, Venezuela will retain a long-term current account surplus under almost any plausible scenario. Since the government controls access to foreign exchange, import growth can be limited as a last resort. Weisbrot recommends the Venezuelan government to pursue an expansionary fiscal policy, including deficit spending, so as to maintain economic growth and prevent unnecessary falls output and employment (just like the counter-cyclical measures the Chinese are now taking). Inflation should not be a problem, since it will be countered by deflationary forces due to the decelerating global economy (e.g. lower food prices). Not only is Venezuela very far from collapse, to the incipient chagrin of schadenfreude-indulging neocons; the fiscal prudence Chávez wisely followed during the fat years will now enable Venezuela to pursue growth in the midst of Anglo-Saxon paralysis.

NB: in other recent work, Weisbrot takes issue with those who think Argentina is going to default on its debt, as it did in 2002. He also has a pessimistic take on the US economy and foreign policy – it’s key points are a) the housing bubble is still far from wound down, b) expects a retreat of neoliberal dogma in the next few years, c) notes that the IMF has lost practically all leverage with respect to middle-income countries, d) US power and prestige have been in retreat throughout Latin America, which has seen a political ‘left wave’ and dissilusionment with the Washington Consensus, e) there is a continued and disturbing lack of understanding of Latin America by Washington’s foreign polic elite, in particular towards Venezuela, f) hopes that the Democratic base will exert influence on foreign policy, in particular removing America’s sense of messianic exceptionalism and g) “Americans may finally begin to see themselves as having to choose between fighting to defend an empire in decline, and enjoying the quality of life – including such amenities as universal health care – that their counterparts in other rich countries have”.

(Republished from Sublime Oblivion by permission of author or representative)
 
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Chavez is frequently shafted in the Western media, who allege that the only reason the Venezuelan economy is doing well is because of record oil prices. This is not to mention all the invective hurled against the Chavez administration for its supposed disrespect for democracy, from refusing to renew the licenses of TV stations support foreign-sponsored coup attempts against him (while ignoring human rights violation in friendly countries in the region like Colombia, where more union workers are killed annually in than in the rest of the world combined) to the latest smear job by the Economist about crime.

But let’s focus on the economic-boom-is-because-of-oil mantra. Having disproved similar claims about Russia, I decided to investigate this further. Novel Prize winning economist Stiglitz has praised Venezuela’s economic policies. And I found this excellent paper, Update: The Venezuelan Economy in the Chávez Years by Mark Weisbrot and Luis Sandoval from 2008. I’ve quoted its main findings.

Venezuela has experienced very rapid growth since the bottom of the recession in 2003, and grew by 10.3 percent in 2006 and about 8.4 percent last year. The most commonly held view of the current economic expansion is that it is an “oil boom” driven by high oil prices, as in the past, and is headed for a “bust.” The coming collapse is seen either as a result of oil prices eventually declining, or the government’s mismanagement of economic policy.
There is much evidence to contradict this conventional wisdom. Venezuela suffered a severe economic growth collapse in the 1980s and 1990s, with its real GDP peaking in 1977. In this regard it is similar to the region as a whole, which since 1980 has suffered its worst long-term growth performance in more than a century. Hugo Chávez Frías was elected in 1998 and took office in 1999, and the first four years of his administration were plagued by political instability that had a large adverse impact on the economy. (See Figure 2). This culminated in a military coup that temporarily toppled the constitutional government in April 2002, followed by a devastating oil strike in December 2002-February 2003. The oil strike sent the economy into a severe recession, during which Venezuela lost 24 percent of GDP.

But in the second quarter of 2003, the political situation began to stabilize, and it has continued to stabilize throughout the current economic expansion. The economy has had continuous rapid growth since the onset of political stability. Real (inflation-adjusted) GDP has grown by 87.3 percent since the bottom of the recession in 2003. It is likely that the government’s expansionary fiscal and monetary policies, as well as exchange controls, have contributed to the current economic upswing. Central government spending increased from 21.4 percent of GDP in 1998 to 30 percent in 2006. Real short-term interest rates have been negative throughout all or most of the recovery (depending on the measure—see Figure 4).

The government’s revenue increased even faster than spending during this period, from 17.4 to 30 percent of GDP over the same period, leaving the central government with a balanced budget for 2006. The government has planned
conservatively with respect to oil prices: for example, for 2007, the budget planned for oil at $29 per barrel, compared to an average price of $65.20 dollars per barrel for Venezuelan crude last year.
The government has typically exceeded planned spending as oil prices come in higher than the budgeted price, so it is possible that spending would be reduced if oil prices decline.

The Chávez government has greatly increased social spending, including spending on health care, subsidized food, and education. The most pronounced difference has been in the area of health care. For example, in 1998 there were 1,628 primary care physicians for a population of 23.4 million. Today, there are 19,571 for a population of 27 million. The Venezuelan government has also
provided widespread access to subsidized food. By 2006, there were 15,726 stores
throughoutthe country that offered mainly food items at subsidized prices (with
average savings of 27 percent and 39 percent compared to market prices in 2005 and 2006, respectively).

The poverty rate has been cut in half from its peak of 55.1 percent in 2003 to 27.5 percent in the first half of 2007, as would be expected in the face of the very rapid economic growth during these years. (See Table 3). If we compare the pre-Chávez poverty rate (43.9 percent) with the first half of 2007 (27.5 percent) this is a 37 percent drop in the rate of poverty. However this poverty rate does not take into account the increased access to health care or education that poor people have experienced. The situation of the poor has therefore improved significantly beyond even the substantial poverty reduction that is visible in the official poverty rate, which measures only cash income.

Inflation itself is a problem, now running at 22.5 percent. But it should be emphasized that double-digit inflation rates in a developing country such as Venezuela are not comparable to the same phenomenon occurring in the United States or Europe. Inflation in Venezuela was much higher in the pre Chávez years, running at 36 percent in 1998 and 100 percent in 1996. It has fallen through most of the current recovery, from 40 percent annual rate (monthly, year-over-year) at the peak of the oil strike in February 2003 to 10.4 percent in May 2006, before climbing again to its present rate (see Figure 3).

Because of its large current account surplus, large reserves, and low foreign debt, the government has a number of tools available to stabilize and reduce inflation – as well as eventually bring the currency into alignment – without sacrificing the growth of the economy. It appears the government is committed to maintaining a high rate of growth, in addition to its other goals. Venezuela is also well-situated to withstand negative external shocks, including a likely U.S. recession or even a serious global slowdown, a significant drop in the price of oil, and problems in the international credit and financial system. Therefore, at present it does not appear that the current economic expansion is about to end any time in the near future.

In sum, the performance of the Venezuelan economy during the Chávez years does not fit the mold of an “oil boom headed for a bust.” Rather it appears that the economy was hit hard for the first few years by political instability, and has grown rapidly since the political situation stabilized in the first quarter of 2003. High oil prices have certainly contributed to this growth, as has the government’s expansionary fiscal and monetary policy. Containing and reducing inflation, as well as realigning the domestic currency, appear to be the most important challenges in the intermediate run; in the long run, diversifying the economy away from its dependence on oil is also a major challenge.

However, the declining public debt (as a percentage of GDP), the large current account surplus, and the accumulation of reserves have given the government considerable insurance against a decline in oil prices. This favorable macroeconomic situation has also left the government with much flexibility in dealing with inflation and the related imbalance in the exchange rate. Since the government is committed to maintaining solid growth, it does not seem likely
that it would sharply curtail economic growth in order to bring down inflation, as is often done. This is especially true since it has not exhausted other alternatives. Venezuela is also well-situated to withstand negative external shocks, including a likely U.S. recession or even a serious global slowdown, a significant drop in the price of oil, and problems in the international credit and financial system. Therefore, at present it does not appear that the current economic expansion is about to end any time in the near future. The gains in poverty reduction, employment, education and health care that have occurred in the last few years are likely to continue along with the expansion.

A few more remarks.

1. Yes, Venezuela has become more oil-intensive as measured by its (nominal) GDP figures during Chavez’ rule. However, this is because oil has exploded in price. In real terms, oil production has actually been in decline and a weight on GDP growth; the biggest growth, by sector, was in construction, mining, utilities, retail, finance, transport and communications. I.e., pretty much everything except oil.

As put by the Council on Foreign Relations, “critics of Chavez think he should be pouring money into infrastructure to ensure a sustainable oil industry rather than allocating so much for social and foreign policy initiatives.” While that is certainly in American and oil-importing countries’ interests, that does not apply to ordinary Venezuelans.

But that’s beside the point, because the reason Venezuelan oil production is in decline is not that the state-owned oil company, PDVSA, has been supposedly stuffed by incompetent Bolivarian ideologues, burdened by non-oil related social and industrial obligations and had its share increased in “strategic associations” (between PDVSA and foreign companies) from 40% to 60%.

While the three above factors have played apart, it all ultimately comes down to peak oil. All the big discoveries were made before 1960 (which led to the first oil peak in 1970) and, with the exception of a small blip in the mid-1980′s (which, together with modernization and deregulation led to the second oil peak in the late 1990′s), have now ceased. And from now on it is predicted Venezuela’s oil production will be in continuous, relentless decline, following in the footsteps of countries like the US itself.

As an aside, the Orinoco fields are not a solution. The only place in the world where heavy oil refining is a major enterprise are the tar sands in Canada, which have not delivered impressive results despite the huge amounts of fresh water, natural gas and capital expended on them.

2. The most comprehensive (and non-hysterical) critique of Chavez is An Empty Revolution: The Unfulfilled Promises of Hugo Chávez by Francisco Rodríguez, who worked for a time Consolidated Social Fund, clashed with the administration and was eventually ousted. A condensed version was reprinted in the IHT.

He attacks the root of the Chavistas’ claims to superiority, claiming that ‘the “Chávez is good for the poor” hypothesis is wrong’. Basically, he suggests that even in those areas where things didn’t get worse (scarcities, access to running water, percentage of underweight babies, wealth unequality, etc), poverty reduction, illiteracy, infant mortality and spending on education and housing would not have been any worse without his presence. In other words, the oil windfall was mismanaged.

3. On the other hand Weisbrot immediately wrote a (convincing) rebuttal of the above claims in An Empty Research Agenda: The Creation of Myths About Contemporary Venezuela, showing most of those claims to be either half-truths or outright falsehoods.

(Republished from Da Russophile by permission of author or representative)
 
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Anatoly Karlin
About Anatoly Karlin

I am a blogger, thinker, and businessman in the SF Bay Area. I’m originally from Russia, spent many years in Britain, and studied at U.C. Berkeley.

One of my tenets is that ideologies tend to suck. As such, I hesitate about attaching labels to myself. That said, if it’s really necessary, I suppose “liberal-conservative neoreactionary” would be close enough.

Though I consider myself part of the Orthodox Church, my philosophy and spiritual views are more influenced by digital physics, Gnosticism, and Russian cosmism than anything specifically Judeo-Christian.